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NEGO - Quevedo

Camille Umali
CHAPTER 2: TRANSFER
GREAT ASIAN SALES CENTER CORPORATION V CA
381 SCRA 557; CARPIO; April 25, 2002
FACTS
-Great Asian is engaged in the business of buying and
selling household appliances. In March 1981, the
board of directors of Great Asian approved a
resolution authorizing its Treasurer and GM, Arsenio
Lim Piat, Jr. to secure a loan from Bancasia in an
amount not to exceed P1M and also authorized
Arsenio to sign all papers, documents or promissory
notes necessary to secure the loan. In Feb. 1982, 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,
documents and checks necessary to secure the
discounting line.
-In March 1981 and 1982, Tan Chong Lin signed 2 Surety
Agreements in favor of Bancasia to guarantee,
solidarily, the debts of Great Asian to Bancasia.
Great Asian, through Arsenio, signed 4 Deeds of
Assignment of Receivables, assigning to Bancasia 15
postdated checks issued by various customers in
payment for appliances and other merchandise.
Arsenio endorsed all the 15 checks by signing his
name at the back of the checks. Eight of the
dishonored checks bore the endorsement of Arsenio
below the stamped name of “Great Asian Sales
Center”, while the rest of the dishonored checks just
bore the signature of Arsenio. The drawee banks
dishonored the fifteen checks on maturity when
deposited for collection by Bancasia, with any of the
following as reason for the dishonor: “account closed”,
“payment stopped”, “account under garnishment”, and
“insufficiency of funds”.
After the drawee bank
dishonored the checks, Bancasia sent letters to Tan
Chong Lin, notifying him of the dishonor and
demanding payment from him. Neither Great Asian
nor Tan Chong Lin paid Bancasia the dishonored
checks.
-In June 1982, Bancasia filed a complaint for collection of
a sum of money against Great Asian and Tan Chong
Lin. 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.
ISSUES
1. WON Arsenio had authority to execute the Deeds of
Assignment and thus bind Great Asian
2. WON Great Asian is liable to Bancasia under the
Deeds of Assignment for breach of contract pursuant
to the civil code, independent of the negotiable
instruments law
3. WON Tan Chong Lin is liable to Great Asian under the
surety agreements.

HELD
1. YES
-The Corporation Code of the Philippines vests in the
board of directors the exercise of the corporate
powers of the corporation, save in those instances
where the Code requires stockholders’ approval for
certain specific acts. In the ordinary course of
business, a corporation can borrow funds or dispose
of assets of the corporation only on authority of the
board of directors. The board of directors normally
designates one or more corporate officers to sign loan
documents or deeds of assignment for the
corporation.
-To secure a credit accommodation from Bancasia, the
board of directors of Great Asian adopted 2 board
resolutions on different dates. (text of resolutions
shown in case) As plain as daylight, the 2 board
resolutions clearly authorized Great Asian to secure a
loan or discounting line from Bancasia. The 2 board
resolutions also categorically designated Arsenio as
the authorized signatory to sign and deliver all the
implementing documents, including checks, for Great
Asian. There is no iota of doubt whatsoever about the
purpose of the 2 board resolutions, and about the
authority of Arsenio to act and sign for Great Asian.
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. 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 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. YES
-Bancasia’s complaint against Great Asian is founded on
the latter’s breach of contract under the Deeds of
Assignment. The Deeds of Assignment uniformly
provided for one vital suspensive condition: in case
the drawers fail to pay the checks on maturity, Great
Asian obligated itself to pay Bancasia the full face
value of the dishonored checks, including penalty and
attorney’s fees. The failure of the drawers to pay the
checks is a suspensive condition, the happening of
which gives rise to Bancasia’s right to demand
payment from Great Asian.
This conditional
obligation of Great Asian arises from its written
contracts with Bancasia as embodied in the Deeds of
Assignment.
-By express provision in the Deeds of Assignment, Great
Asian unconditionally obligated itself to pay Bancasia
the full value of the dishonored checks. In short,
Great Asian sold the postdated checks on with

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NEGO - Quevedo
Camille Umali
recourse basis against itself. 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, as provided in Art 1159 of the Civil Code.
Great Asian and Bancasia agreed on this specific with
recourse stipulation, despite the fact that the
receivables were negotiable instruments with the
endorsement of Arsenio. 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.
-The explicit with recourse stipulation against Great Asian
effectively enlarges, by agreement of the parties, the
liability of Great Asian beyond that of a mere endorser
of a negotiable instrument. Thus, whether or not
Bancasia gives notice of dishonor to Great Asian, 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.
-There is nothing in the Negotiable Instruments Law or in
the Financing Company Act, that prohibits Great
Asian and Bancasia parties from adopting the with
recourse stipulation uniformly found in the Deeds of
Assignment.
Instead of being negotiated, a
negotiable instrument may be assigned. Assignment
of a negotiable instrument is actually the principal
mode of conveying accounts receivable under the
Financing Company Act. Since in discounting of
receivables the assignee is subrogated as creditor of
the receivable, the endorsement of the negotiable
instrument becomes necessary to enable the
assignee to collect from the drawer.
This is
particularly true with checks because collecting banks
will not accept checks unless endorsed by the payee.
The purpose of the endorsement is merely to facilitate
collection of the proceeds of the checks.
-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. Otherwise, consumers who purchase
appliances on installment, giving their promissory
notes or checks to the seller, will have no defense
against the finance company should the appliances

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

2

NEGO - Quevedo A
Camille Umali
CHAPTER III: HOLDER IN DUE COURSE [Cases cited in Campos]
YANG V. COURT OF APPEALS
409 SCRA 159
FACTS:
Yang and Chandimari entered into an agreement that the
latter would issue to the former a manager’s check in
exchange for two checks that Yang has payable to
the order of David. The difference in amount
would be the profit of the two of them. It was
further
agreed
upon
that
Yang
would
secure a dollar draft, which Chandimari would
exchange with another dollar draft to be secured
from a Hong Kong bank. At the agreed time of
rendezvous,
it
was reported
by
Yang’s
messenger that Chandimari didn't show up and the
drafts and checks were allegedly stolen. This wasn't
true however. Chandimari was able to get hold of
the drafts and checks. He was even able to
deliver to David the two checks and was able
to get money in return. Consequently, Yang asked
for the stoppage of payment of the checks she
believe to be lost, relying on the report of her
messenger. The stoppage order was eventually
lifted by the banks and the drafts and checks were
able to be encashed. Yang then filed an action for
injunction and damages against the banks,
Chandimari
and
David.
The
trial court and CA held in favor of David as a holder
in
due
course.
HELD:
Every holder of a negotiable instrument is presumed to
be a holder in due course. This is specially true if
one is a holder because he is the payee or indorsee
of the instrument. In the case at bar, it is evident
that David was the payee of the checks. The

prima facie presumption of him being a holder
in due course is in his favor. Nonetheless, this
presumption is disputable. On whether he took the
check under the conditions set forth in Section 52
must be proven.
Petitioner relies on two
arguments
on
why
David isn’t a holder in due course—first,
because he took the checks without valuable
consideration; and second, he failed to inquire
on Chandimari’s title to the checks given to him.
The law gives rise to the presumption of valuable
consideration. Petitioner has the burden of
debunking such presumption, which it failed to
do so. Her allegation that David received the
checks without consideration is unsupported and
devoid
of
any
evidence.
Furthermore, petitioner wasn't able to show any
circumstance which should have placed David in
inquiry as to why and wherefore of the possession of
the checks by Chandimari.
David wasn't a
privy to the transactions between Yang and
Chandimari.
Instead, Chandimari and David
had the agreement between themselves of the
delivery of the checks. David even inquired with the
banks on the genuineness of the checks in issue. At
that time, he wasn't aware of any request for the
stoppage
of
payment.
Under
these circumstances, David had no obligation to
ascertain from Chandimari what the nature of the
latter’s title to the checks was, if any, or the nature of
his
possession.

ATRIUM MANAGEMENT CORPORATION VS. COURT OF APPEALS
Facts:
Hi-Cement Corporation through its corporate signatories,
Lourdes M. de Leon, treasurer, and the late Antonio
de las Alas, Chairman, issued checks in favor of E.T.
Henry and Co. Inc., as payee. E.T. Henry and Co.,
Inc., in turn, endorsed the four checks to Atrium
Management Corporation for valuable consideration.
Upon presentment for payment, the drawee bank
dishonored all four checks for the common reason
"payment stopped". On 3 January 1983, Atrium
Management Corporation filed with the Regional
Trial Court, Manila an action for collection of the
proceeds of four postdated checks in the total
amount of P2 million, after its demand for payment of
the value of the checks was denied. After due
proceedings, on 20 July 1989, the trial court
rendered a decision ordering Lourdes M. de Leon,
her husband Rafael de Leon, E.T. Henry and Co.,
Inc. and Hi-Cement Corporation to pay Atrium jointly
and severally, the amount of P2 million
corresponding to the value of the four checks, plus
interest and attorney's fees. On appeal to the Court

of Appeals, on 17 March 1993, the Court of Appeals
promulgated its decision modifying the decision of
the trial court, absolving Hi-Cement Corporation from
liability and dismissing the complaint as against it.
The appellate court ruled that: (1) Lourdes M. de
Leon was not authorized to issue the subject checks
in favor of E.T. Henry, Inc.; (2) The issuance of the
subject checks by Lourdes M. de Leon and the late
Antonio de las Alas constituted ultra vires acts; and
(3) The subject checks were not issued for valuable
consideration. Hence, Atrium filed the petition.
Issue [1]: Whether the issuance of the checks was an
ultra vires act.
Held [1]: The record reveals that Hi-Cement Corporation
issued the four (4) checks to extend financial
assistance to E.T. Henry, not as payment of the
balance of the P30 million pesos cost of hydro oil
delivered by E.T. Henry to Hi-Cement. Why else
would petitioner de Leon ask for counterpart checks
from E.T. Henry if the checks were in payment for

In as much as George King failed to deliver the bales of tobacco leaf as agreed despite its demand. trustee or officer along (although not necessarily) with the corporation may so validly attach. or (b) for bad faith or gross negligence in directing its affairs. "that the checks issued to E.000. it instituted the present case with the Regional Trial Court. maintains that the checks were not issued for consideration and that Lourdes and E. de Leon is the treasurer of the corporation and is authorized to sign checks for the corporation. the confirmation letter contained a clause that was not true. while the latter is void and cannot be validated. What is more. Ms. Henry. and thus reversed the decision of the Regional Trial Court as affirmed by the Court of Appeals’ with cost against SIHI. She was aware that the checks were strictly endorsed for deposit only to the payee's account and not to be further negotiated. BCCFI agreed to purchase additional 2. de Leon and Antonio de las Alas as treasurer and Chairman of HiCement were authorized to issue the checks." Herein. Raised in the Court of Appeals. Issue [2]: Whether Lourdes M. Yap of Atrium and Mr. does not forthwith file with the corporate secretary his written objection thereto. on 13 July 1978 issued crossed checks post dated sometime in March 1979 in the total amount of P820. de Leon may be held personally liable therefor. post dated September 15 & 30. drawn by BCCFI in favor of George King. payable sometime in September 1979. having knowledge thereof.00. post dated 31 March 1979. as payee. to personally answer for his corporate action. Hence. Henry were in payment of Hydro oil bought by HiCement from E. (SIHI).T. Henry to Hi-Cement? HiCement. due to George King's failure to deliver the tobacco leaves.T. the present petition for review. Henry for the rediscounting of the crossed checks issued in favor of E. respectively. however.T. BCCFI. Thus. he again sold to SIHI checks TCBT 608967 & 608968. a corporation involved in the manufacturing of cigarettes. for it was for securing a loan to finance the activities of the corporation. he sold at a discount check TCBT 551826 bearing an amount of P164. as a rule. ratification. BATAAN CIGAR AND CIGARETTE FACTORY VS. Holder in Due Course Section 52 of the The Negotiable Instruments Law states what constitutes a holder in due course. naming only BCCFI as party defendant. The trial court pronounced SIHI as having a valid claim being a holder in due course. both in the amount of P100. there were sufficient funds in the bank to cover payment of the amount of P2 million pesos. Henry". George King was simultaneously dealing with State Investment House Inc. Ms. (2) He consents to the issuance of watered down stocks or who.00. by a specific provision of law.000 bales of tobacco leaf starting October 1978. It further said that the non-inclusion of King Tim Pua George as party defendant is immaterial in this case. the appellate court affirmed the decision of the trial court. (BCCFI). An ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law" The term "ultra vires" is "distinguished from an illegal act for the former is merely voidable which may be enforced by performance. BCCFI issued postdated crossed checks in the total amount of P1. (b) That he became the holder of it before it was overdue. that is. drawn by BCCFI. On 19 December and 26. BCCFI issued on 30 March 1979. 1978.T. naming George King as payee to SIHI. Held [2]: Personal liability of a corporate director. despite the supplier's failure to deliver in accordance with their earlier agreement. Relying on the supplier's representation that he would complete delivery within 3 months from 5 December 1978. who admittedly was in need of financial assistance. However. resulting in damages to the corporation. (3) He agrees to hold himself personally and solidarily liable with the corporation. Hence. CA Facts: Bataan Cigar & Cigarette Factory.500 bales of tobacco leaves. Section 52 NIL. is not an indispensable party. In consideration thereof. Her negligence resulted in damage to the corporation.NEGO . 1979 respectively. Efforts of SIHI to collect from BCCFI having failed. finding that the court a quo erred in the application of law. Henry engaged in a "kiting operation" to raise funds for E.T. Lourdes M. engaged one of its suppliers. only when: (1) He assents (a) to a patently unlawful act of the corporation. de Leon and Antonio de las Alas were personally liable for the checks issued as corporate officers and authorized signatories of the check. including check TCBT 551826. King Tim Pua George (George King). Henry. Again. Henry of E. Inc. the act of issuing the checks was well within the ambit of a valid corporate act. or estoppel. since he. not an ultra vires act. de Leon was negligent when she signed the confirmation letter requested by Mr. or (4) He is made. stop payment was also ordered on checks TCBT 608967 & 608968 on September 14 & 28. During these times. 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.T. its stockholders or other persons.Quevedo 2 Camille Umali hydro oil delivered by E. Subsequently. There was no sufficient evidence to show that such is the case. and without notice that it had been previously . 1.100.000. At the time of the issuance of the checks. On 19 July 1978.T. to deliver 2. or (c) for conflict of interest.000. 1979. Lourdes M. a stop payment order on all checks payable to George King. hence. The Supreme Court granted the petition.000.

Kinds A check is defined by law as a bill of exchange drawn on a bank payable on demand. (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. he is not a holder in due course. Philippine setting: Effects of a crossed check In the Philippine business setting. 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. 5. Unless one is a valued client. Crossed check A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. cashier's check. SIHI can collect from immediate indorser. whether specially or generally. acquired the title as holder in due course. This is specially true in England where the Negotiable Instrument Law originated. It is crossed generally when only the words "and company" are written or nothing is written at all between the parallel lines. 8. However. beset with bouncing checks. Check defined. when it is shown that the title of any person who has negotiated the instrument was defective. 3. George King It does not mean. that SIHI could not recover from the checks. There are a variety of checks. the negotiability of a check is not affected by its being crossed. Consequently. however. Veritably the Negotiable Instruments Law (NIL) does not mention "crossed checks. (b) the check may be negotiated only once — to one who has an account with a bank. It may be issued so that presentment can be made only by a bank. Failing in this respect. Crossed check should put holder on inquiry to ascertain indorser’s title or nature of possession. 52(c) of the Negotiable Instruments Law. In order to preserve the credit worthiness of checks. BCCFI's defense in stopping payment is as good to SIHI as it is to George King. Effects of failure. or if it is specially crossed. 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 nonnegotiable. SIHI vs. in this case. 4. otherwise. Inc. It may be crossed generally or specially.NEGO . (c) That he took it in good faith and for value. Section 52 (c) NIL 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. 9. the more popular of which are the memorandum check. traveler's check and crossed check. forging of checks. if such was the fact. Section 59 NIL Section 59 of the NIL further states that every holder is deemed prima facie a holder in due course. 7. particularly those which name a specific payee. Hence. .Quevedo 3 Camille Umali dishonored. Intermediate Appellate Court wherein the Court made a discourse on the effects of crossing of checks. (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. 6. and so forth that banks have become quite guarded in encashing checks. the holder is declared guilty of gross negligence amounting to legal absence of good faith. (the very respondent in this case) v. and as such the consensus of authority is to the effect that the holder of the check is not a holder in due course. George King. by the bank mentioned between the parallel lines. General viewpoint and English setting on crossed check: Negotiability of a check not affected According to commentators. because the checks were issued with the intention that George King would supply BCCFI with the bales of tobacco leaf. BCCFI cannot be obliged to pay the checks. IAC on all fours The facts in thepresent case are on all fours to the case of State Investment House. In the present case. 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." 2. a bank will not even accept second indorsements on checks." although Article 541 of the Code of Commerce refers to such instruments. Crossed check is one where two parallel lines are drawn across its face or across a corner thereof. There being failure of consideration. contrary to Sec. the burden is on the holder to prove that he or some person under whom he claims. SIHI is not a holder in due course. SIHI can collect from the immediate indorser.

Thus. -To effect the execution of the judgment. -Brewing company defaulted. -TC ruled in favor of the bank. -It does not appear. FACTS -The Bank of the Philippine Islands (BPI) filed a collection suit against Alfred Berwin & Co (ABC). BPI prayed that Diaz be summoned to testify concerning the credit of ABC against him.Quevedo 4 Camille Umali BPI V ALFRED BEARWIN & CO. it was beyond Diaz’s power to prevent ABC from negotiating the promissory notes. 1912. one for $3K (Note A) and the other for $2500 (Note B). and that he holds it free from latent defenses on the part of the maker. Note B was indorsed to the same bank as payment for 5 other notes earlier executed by the brewing company as maker and purchased by the bank. To compel Diaz to pay ABC would be to expose him to the situation in which. the company manager. HELD: NO. or the sheriff as a credit in favor of said corporation. The accommodation indorsers signed on representation that the proceeds were to be used to pay for supplies for the brewery. It was not known whether ABC is still the holder in due course of the promissory notes or whether it had already been alienated. it is argued by the accommodation parties that mere delivery of Note A.000 was evidenced by two promissory notes he issued in favor of ABC. if the bank is a holder for value. having paid the amount of the promissory notes without settling the same. for said person is the one entitled to receive it. -As for Note B. The consideration paid by the bank for this note was the cancellation and surrender by it of the 5 other notes executed by the brewing company. from the record whether such promissory notes are still in the hands of ABC. when the preliminary attachment was ordered. Reasoning -The accommodation indorsers are liable to the bank on the notes. ABC’s debtor. as the notes were indorsed to it before maturity and without notice for their restricted use and purpose. (1928) ~ricky~ NATURE Appeal by Anselmo Diaz against the CFI of Iloilo’s order for him to satisfy 2 promissory notes he issued in favor of Alfred Berwin & Co. . The bank did not know of the diversion of the two demand notes from their intended purpose. 1912 for 6 months. Goecke. There is no proof in the record that at the time Note C was renewed on Nov. before its maturity. Diaz acknowledged his indebtedness in the sum of P20. each payable to the maker’s order and indorsed in blank ink by it & by 5 accommodation indorsers. Reasoning Diaz cannot be compelled to pay the amount of the said promissory notes to any person save the holder of such documents in due course. 10. was given notice. The CFI of Iloilo rendered judgment in favor of BPI. it is clear that the bank is a holder for value..The fact that he was given notice when the preliminary attachment was ordered does not change the situation because the debt was secured by negotiable instruments. not to deliver the payment of his debt to ABC. the last renewal of which was made on Nov. Note A was indorsed to Elgin National Bank as collateral security for a note (Note C) earlier executed by Goecke as maker. does not make the bank a bona fide holder for value. ISSUE WON the accommodation indorsers are liable to the bank notwithstanding the diversion of the proceeds of the notes HELD: YES Ratio An indorsee of a negotiable note who has taken it. The P20. the balance of credit for a greater amount. 22.000. -Both notes were diverted by Goecke from their intended purpose. Appellate court affirmed. including Frank A. is deemed a holder for a valuable consideration. however.NEGO . 22 there was an agreement that Note A was to be put up as collateral and in part consideration for the extension of Note C. ELGIN NAT’L BANK V GOECKE (1920) ~joey~ FACTS -Elgin National Brewing Company executed two demand notes. . This contention is without merit. without agreement for further extension of time or other agreement for Note C. -Note A was not delivered to the bank and accepted by it as security until Dec. Disposition Order revoked. Diaz. a holder in due course may appear and within all reason demand its full payment. Bank sued all 5 accommodation indorsers. as collateral security for a preexisting debt and without any express agreement. although the bank at the time of taking the instruments knew that they were only accommodation parties. Notwithstanding such notice. See ratio Dispositive Judgment affirmed. ISSUE WON Diaz may be compelled to pay Alfred Berwin & Co.

52(3)) or as a purchaser for value in this case since NBC credited the amount of the draft to the deposit account of NHC and NBC failed to show that the amount credited was absorbed by existing debts or subsequently checked out. w/c gave depositor credit representing the principal & accrued interest ($2. NBC didn’t show that they have given value for the instrument ergo NBC not a holder/purchaser for value. denied their contention and held that the case of Fredonia v. Dreilling v. Morgan (a creditor of the NHC) instituted attachment proceedings against NHC and service was sought to be perfected by the process of garnishment directed to FNBB. FOX v. -The Court. In said case. White’s account had been fully checked out and that the proceeds of the note had been fully exhausted. the draft with the bill of lading attached was forwarded by NBC to the First National Bank of Birmingham (FNBB) for collection and remittance to NBC and the amount of the draft was paid by the drawee to FNBB. The smallest balance during this period was $6. -(*Campos’ note: The ruling in this case represents the minority view that as long as the balance in the depositor’s account equals or exceeds the amount of the instrument deposited. -FNBB. NHC had a balance on deposit in excess of the amount of the draft continuously from the negotiation till the garnishment.36). however.294. -After this. Maria gave netotiable note payable to order of American Hoist & Derrick Co (payee). there would have been a mere bookkeeping entry. NBC cannot be considered as a holder in due course (as per Sec. -Furthermore. But if the sum had subsequently been checked out.) . -Morgan won at the circuit court. TF. -The Bank sued the maker. (1914) ~chriscaps~ FACTS -Sta. NBC then laid claim to the fund. -Discounting bank had no knowledge of claimed defense of maker until receipt of its letter.)) Reasoning In this case. NBC was not a holder for value. -Said items were received by the NBC and were then credited to the account of NHC. NBC insists that it was a purchaser for value and that NHC’s account had never been overdrawn and it had balance to its credit in excess of the draft.Quevedo B Camille Umali MERCHANTS’ NAT’L BANK OF ST. the NHC here had a standing balance to its credit with the NBC throughout this period in excess of the draft. -Prior to remittance (of the proceeds of the draft) by the FNBB to NBC. -We should agree with opinion of Justice Brewer: The first debits are to be charged against the first credits. FNBB was ordered to pay the proceeds of the draft to Morgan. Here. this appeal by NBC. if the proof showed that the NHC had checked out its entire balance at any time between the deposit of the draft and the notice of garnishment.NEGO . Maker (Sta. Hence. But as had been held. continuously from the day the said draft was received until the day of the garnishment. the Court thinks that their position is more just and equitable in view of the fact that a bank has the right to apply all unchecked deposits against the debt due it by the depositor. that the bank was a bona fide holder for value. -Mere discounting of the note and placing the amount of said discount to the credit of the holder would not then have constituted a transfer for value because the bank would have parted with nothing. ISSUE WON NBC received the draft as a mere collecting agent or as purchaser/ WON NBC is a holder for value HELD -NBC was a mere collector. there were subsequent deposits and withdrawals. (*Basically. just as in the case at bar. it had no knowledge or suspicion of any infirmity. It follows therefore. -Payee deposited the note in Merchants’ Natl Bank. Bank of Kansas. Maria) claimed that the Bank is not a holder for value and not a holder in due course. -All the other cases cited by NBC (ie. Tommei was not in conflict with their holding. admitted that it held in its possession the proceeds of the draft but said that NBC had the right to claim said fund. ISSUE: WON the Bank is a holder in due course NAT’L BANK OF COMMERCE V MORGAN (1921) ~edel~ FACTS -Nat’l Hay Company (NHC) deposited with NBC a draft and a bill of lading. MARIA SUGAR CO. in response to the garnishment.26 NIL. -Eventually. the instrument cannot be considered withdrawn for the purpose of treating the bank as holder for value (as per sec. PAUL V STA. HELD: YES -Until 1 month after plaintiff had discounted the instrument. then value would have passed. First National Bank etc) were held to be contrary to the Court’s decision and to NBC’s contention as well.427. TF.04. And they added that this holding cannot be of serious detriment to banks while a contrary view might result in furnishing a weapon to the negotiator of notes and bills against their creditors or persons having a right or equity in or against the instruments negotiated.

WON there was valid negotiation of the check (basically. . He was given P158. Ocampo can't be a HDC because although he had no notice of defect in title. and without actual knowledge of the infirmity of the title the loser of the check. which amounts to legal absence of good faith. they acquired a ISSUE perfect title to the check by their purchase. Instead.75 with the clinic. or the bearer thereof. DE OCAMPO V GATCHALIAN (1961) FACTS -Anita Gatchalian was looking for a car to buy. His failure to do so is gross neglect in not finding out the nature of the title and possession of Manuel. b. Anita told Manuel to bring the car together with the registration the next day. YES. -It would've been easy for Ocampo to inquire because he knew Anita's husband. WON Ocampo is a holder in due course HELD 1. so that Anita's husband can inspect it also. he went to Ocampo Clinic and paid for her wife's outstanding balance of P441. or -Harris drew a check for $15. Anita got suspicious and gave the bank a stop payment order on the check. within a week after the check’s negligence are not of themselves bad faith. WON original payee of the check can become a holder in due course 2. sued the drawee bank. a payee can be a HDC. amounted to bad faith. She contends that the check is not a negotiable instrument and that Ocampo is not a holder in due course. 3.” The purchased this check for value. The test is of the reasonable prudent man and good faith. At the request of the indorsee. Ocampo won. The result is. the check was paid by the drawee to Ward & Fryberg. and the suit dismissed. Her friend Emil Fajardo brought Manuel Gonzales to her house because Manuel had a car to show her. Anita appealed. YES.25 cash as sukli. While Sec 52 defines a HDC as a HOLDER who has taken the instrument under the 4 conditions. NO. Manuel said that the owner would most likely not allow him to bring the registration unless there's a showing that the party interested in the purchase of the car is ready and willing to pay for it. These facts should have put him on guard and inquired into the title of Manuel: a. The latter then was the agent of Anita. of the holder. original payee. Anita liked the car. He therefore cannot be considered a holder in good faith. of goods sold to “a customer who was unknown to them -There is no doubt. the drawer ordered payment stopped by notice to instrument owes no duty to the former holders to the drawee bank. Ocampo cannot be a HDC. negotitation took place through no fault of Ocampo. that Ward & Fryberg but who was supposed by them to be the owner. and had the WON Ward & Fryberg purchased the check for value. and is not entitle to infirmity in the title of the holder recover its proceeds from the bank. in consequence of course of trade. Manuel didn't come. Disposition Judgment of the circuit court is reversed. Therefore.25 on the Unaka National Bank defect of the title of the person negotiating the same. the check had two parallel lines in the upper left hand corner. Manuel said he was duly authorized by Ocampo Clinic to sell the car. Anita had no obligation or liability to Ocampo Clinic. Therefore. the payable to the order of Butler and delivered the check to person to whom it is negotiated must have had actual the payee for value. When the agent (Manuel) of drawer (anita) negotiated the check with the intention of getting its value from Ocampo. in due course of trade. and at the same time. To constitute notice of an infirmity in an instrument. -The next day. and that circumstances of suspicion and gross merchants who. upon this record. for the use of his indorsee Davis. Sec 52 requires the holder to be in good faith to be considered a HDC.NEGO . The stop order was overlooked and actively inquire into the title of the party in possession. It is equally clear that there was no bad faith in the transaction. had taken the check in payment evidence tending to establish it. ISSUES 1. The check payable to Ocampo was entrusted to Manuel. Butler. The purchaser of a negotiable Davis. he must also have taken the instrument in good faith. -The presumption in Sec 59 that every holder is a HDC cannot apply in this case because there were suspicious circumstances that should have put the person in to inquiry as to the title of the holder who negotiated the instrument to him. So Anita issued a check for P600 in Ocampo's name. Ocampo was not aware of the arrangement between Manuel and Anita at the time Manuel gave it to him as payment for wife's bills. Davis lost his title. 2. and c. and without actual knowledge of the of the same facts. who is in possession of it. or knowledge of blank and negotiated it to Davis who on the next day such facts that his action in taking the instrument lost it on the highway. -Ocampo went after Anita. the amount on the check didn't correspond exactly to Manuel's utang.Quevedo A Camille Umali UNAKA NAT’L BANK V BUTLER (1904) HELD FACTS YES. which in practice means that the check was for deposit only and cant be converted into cash. but only issuance to the payee. unless it can be shown that Ocampo should be considered as having notice of the defect in the possession of holder Manuel. WON Ocampo had NO NOTICE of defect of holder's title) 3. when Manuel didn't come. Sec 191 of NIL defines HOLDER as the payee or indorsee of a bill or note. Meanwhile. The payee indorsed the check in knowledge of the infirmity or defect. in due right to collect it.

NEGO - Quevedo A
Camille Umali
CHIANG YIA MIN vs. COURT OF APPEALS
Facts:
US$100,000.00 was sent by Hang Lung Bank Ltd. Of
Hong Kong on February 7, 1979 through the
Pacific Banking Corporation to RCBC. The
remittance was for petitioner’s own account and was
intended to qualify him as a foreign investor under
Philippine laws. It was sent by petitioner himself prior
to his arrival in the Philippines.
When petitioner checked on his money sometime in mid1985, he found out that the dollar deposit was
transferred to the Shaw Boulevard branch of
respondent bank and converted to a peso account,
which had a balance of only P1,362.10 as of October
29, 1979.
A letter of respondent bank dated August 9, 1985 stated
that petitioner’s Current Account was opened on
February 8, 1979, with an initial deposit of
P729,752.20; a total of P728,390.00 was withdrawn
by way of five checks apparently issued by
petitioner in favor of Papercon (Phils.), Inc., and a
business venture of Tom Pek. Thus, the balance of
the account was reduced to P1,362.10 as of October
29, 1979 and no transactions were made on the
account since.
In the same letter, the bank stated that it was no longer
able to locate the microfilm copies of the issued
checks, specimen signature cards, and other records
related to the questioned account, since the account
had been inactive for more than five years.
Petitioner: he did not cause the transfer of his money to
the Shaw Boulevard branch of RCBC, as his
instructions in the telegraphic transfer were for the
money to be remitted to the RCBC head office in
Makati, nor its conversion to pesos and the
subsequent withdrawals. Nor did he authorize
anyone to perform these acts.
Bank: should it be made liable to petitioner, said thirdparty defendants as payees and beneficiaries of the
issued checks should be held solidarily liable with it
Papercon: did not deny receiving the checks worth
P712,700.00 but argued that unless proven
otherwise, the said checks should be presumed to
have been issued in their favor for a sufficient and
valuable consideration.
TC: withdrawals were not made by petitioner nor
authorized by him, and held respondent bank liable
CA:

the opening of the current account and the
withdrawals therefrom were authorized by petitioner;
accordingly, it reversed the decision of the RTC and
absolved private respondents of liability

Issue: WON petitioner has proved, by a preponderance
of the evidence, that bank connived with Papercon
and Tom Pek in allowing the withdrawals from

Current Account, knowing these to be unauthorized
by petitioner, and with the purpose of defrauding
him.
Held: No. There is thus no evidence to demonstrate that
bank and Papercon and Tom Pek colluded to
defraud petitioner of his money. What the evidence
in fact establishes is that the opening of the account
and the withdrawals were authorized by petitioner,
and that the signatures appearing on the questioned
checks were petitioner’s
Ratio:
1. petitioner originally sued upon an allegation of
negligence on the part of respondent bank’s officers
and employees in allowing the said withdrawals
2. Under either theory of fraud or negligence, it is
incumbent upon petitioner to show that the
withdrawals were not authorized by him. If he is
unable to do so, his allegations of fraud or
negligence are unsubstantiated and the presumption
that he authorized the said withdrawals will apply.
3. Petitioner's allegation was countered by the
testimony of Catalino Reyes, the accountant of
Pioneer Business Forms (a business venture of Tom
Pek).
He testified that he and his fellow employees were
advised by Tom Pek to "personally help (Chiang Yia
Min) in all his personal accounts. He also said that
the opening of the account was done in haste, since
petitioner was in a hurry to have the proceeds of the
remittance credited to his checking account.
Because Reyes was well-known to the officers and
employees of RCBC-Shaw Boulevard, he was
allowed to bring out of the bank the application form,
depositor’s card, and other forms which required
petitioner’s signature as depositor. He then filled out
the forms, and brought them to petitioner for signing.
He witnessed petitioner sign the forms. Then he
brought the signed forms, and petitioner’s passport,
back to the bank, which approved the opening of the
current account upon a comparison of the signatures
on the forms and the passport. This is supported by
documentary evidence.
4. As established by the records, there were five issued
checks: two made payable to Papercon, and three
made payable to cash (these three checks were all
negotiated to Tom Pek). Catalino Reyes testified that
on two separate instances, petitioner asked him to
prepare two of the five checks questioned in this
case, specifically, the check for P700,000.00 and
payable to Papercon, and the check for
P12,700.00, and payable to cash. He witnessed
petitioner study the information typed on the checks,
sign the checks, and hand them over to Tom Pek.
The microfilm copies of these checks were submitted
in evidence. They all bear the signature of petitioner.
5.

Confronted with such direct and positive evidence
that he authorized the opening of the account and
signed the questioned checks, it is curious that
petitioner did not take the witness stand to refute

NEGO - Quevedo B
Camille Umali
Reyes’s testimony. He did present as his rebuttal
witness a teller of Metrobank (in which he also
maintained a checking account) who testified that
she had assisted petitioner in some withdrawals with
Metrobank and in these instances it was petitioner
himself, unassisted, who filled out his checks. Thus,
petitioner attempted to show that he prepared
his own checks as a matter of practice. However,
we note that the Metrobank teller testified to checks
issued on December 1989, or long after the herein
questioned checks were issued. It would neither be
fair nor accurate to compare the practice of
petitioner in issuing checks in 1979, when
admittedly he was still unfamiliar with the
English language, with the manner by which he
prepared his checks ten years later.
6.

7.

The best witness to counter the testimony of
Catalino Reyes would be petitioner himself,
simply because, based on the statements of Reyes,
the only persons present when petitioner allegedly
instructed Reyes to open the account and signed the
checks were Reyes, petitioner himself, and Tom
Pek. (Tom Pek died during the course of the
proceedings.) Besides, if indeed Catalino Reyes
lied in saying that petitioner instructed the
opening of the account and issued the checks,
we cannot imagine a more natural reaction of
petitioner than wanting to set the record right.
Moreover,
petitioner’s
signatures
on
the
questioned check amounts to prima facie
evidence that he issued those checks. By denying
that he issued the said checks it is he who puts into
question the genuineness and authenticity of the
signatures appearing thereon, and it is he who has
the burden of proving that those signatures were
forgeries. No shared of evidence was presented by
petitioner to show that the signatures were not his.
All that this petition relies on insofar as concerning
the authenticity of the signatures is the finding of the
trial court judge that there was a discrepancy
between the signatures on the bank form and
petitioner’s passport. The Court, however, believes
that since what is at issue here is whether petitioner
issued the questioned checks the essential
comparison should be between the signatures
appearing on the checks and the specimen
signatures on the depositor’s card. The record is
replete with documents bearing petitioner’s
signature, among them, his residence certificate,
alien certificate of registration, investor’s passport,
tourist’s passport, and the application forms for an
RCBC current account. From our examination of
these records we find no significant disparity
between the signatures on the checks and those
on the abovesaid documents, and will not risk a
finding of forgery where the same had not been
clearly alleged nor proved. Forgery, as any other
mechanism of fraud, must be proven clearly and
convincingly, and the burden of proof lies on the
party alleging forgery.

ON NEGLIGENCE OF BANK
Petitioner: capitalizes on the following purported
irregularities surrounding the opening of the account:
1. the alleged depositor never appeared at the bank;
2. the person who transacted for the alleged depositor
was not shown to have been authorized for that
purpose;
3. the application form and other documents required to
open the account were brought out of the bank
premises;
4. the application form, when submitted, was not
properly accomplished, but was left blank on most of
the required details.
SC: The arguments are unmeritorious for failure to
show that such irregularities attending the opening of
the account resulted in the unauthorized withdrawal
of petitioner’s money. The evidence stands
unrebutted that petitioner instructed the opening of
the said account and signed the pertinent
application forms. Quite contrary to petitioner’s
insinuations of fraud or negligence, the evidence
indicates that the reason why respondent bank
relaxed its rules in handling petitioner’s application
was because, in addition to having been referred by
a well-known client, petitioner was in a hurry to have
the remittance credited to his account.
OTHER FINDINGS:
1. There is no truth to petitioner’s contention that he
could not have authorized the opening of Current
Account because he was not yet in the country at the
time. The fact is, by February 7, 1979, his 7-day visa
had already expired and he was plainly an
overstaying tourist, working against time to secure
an investor’s visa to legitimize his stay in the
Philippines, which explains the haste by which he
ordered the withdrawal of the money and the
opening of the account in RCBC.
2. It also strains credulity that an investor like petitioner
would allow a substantial amount of money to lie
insipid and unproductive in a bank account for six
years before he bothered to check on it. The
complaint was filed with the RTC only on June 29,
1987, or almost two years after his supposed
discovery of the loss of his money.
3. Petitioner’s claim that he felt no need to check on the
US$100,000.00 because he still had cash at hand
was contradicted by his own testimony that in 1983
and 1984 he could not put up the money to fund a
letter of credit, lost a major client in the process, and
was put out of business.
4. Petitioner wrote the Shaw Boulevard branch of
respondent bank to inquire about the status of his
current account is fundamentally inconsistent with
his position that he had no knowledge of the opening
of the account in that branch.
5. As for Papercon and Tom Pek, upon the finding
that the checks issued to them were in order, and
there being indication that respondent bank colluded
in paying the checks to them for any unlawful cause,
or was otherwise deceived or misled into doing the
same, the presumption lies that they were
holders for value and in good faith.

NEGO - Quevedo A
Camille Umali
STATE INVESTMENT HOUSE V IAC, SPS. CHUA (1989)
~chrislao~
FACTS
-New Sikatuna Wood Industries (New Sikatuna, for
brevity) entered into a contract of loan with Chua.
Chua's wife issued three postdated crossed checks
(valued at almost 300K) payable to New Sikatuna.
This loan was subject to the condition "if and when
the deposits were made to back up the checks".
-New Sikatuna sold 11 checks including the said 3
checks at a discount to State Investment House.
State Investment tried to deposit said checks but the
same were dishonored by reason of "insufficient
funds", "stop payment" and "account closed",
respectively.
-State House Investment filed an action for collection
against Spouses Chua. RTC ruled against the
spouses. IAC REVERSED. Hence, this petition.
ISSUE
WON State Investment House is a holder in due course
and therefore not subject to the defense of the
drawer (Spouses Chua) against the payee (New
Sikatuna) due to absence of consideration
HELD
NO. IAC correctly relied on the HELD in Ocampo v.
Gatchalian as regards the effects of crossing a

check: the check may not be encashed but only
deposited in the bank; the check may be negotiated
only once—to one who has an account with a bank;
and the act of crossing the check serves as a
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.
-State Investment House's failure to inquire from the
holder, New Sikatuna, the purpose for which the
3 checks were crossed, despite the warning of
the crossing, prevents State Investment from
being considered in good faith and thus it is NOT
a holder in due course.
-Since it is not a holder in due course, it is subject to
personal defenses, such as lack of consideration
between Spouses Chua and New Sikatuna. Under
the facts, the checks were postdated and issued only
as a loan to New Sikatuna, is and when deposits
were made to back up the checks. No such deposits
were made, hence no loan was ever made. The 3
checks were without consideration.
-although State Investment is not a holder in due course,
it doesn't mean that it could not recover on the
checks. The only disadvantage is that it is subject to
defenses as if the instruments were non-negotiable.

CONSOLIDATED PLYWOOD INDUSTRIES, INC V IFC LEASING AND ACCEPTANCE CORP (1987)
~apple~
NATURE
Petition for review on certiorari of a decision of the
IAC
FACTS
-Consolidated, a corporation engaged in the logging
business, needed 2 units of tractors for its projects.
-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, Industrial Products Marketing (the "sellerassignor").
-Petitioner inspected the tractors while sellerassignor assured petitioner-corporation that the
"used" Allis Crawler Tractors which were being
offered were fit for the job, and gave the
corresponding warranty of ninety (90) days
performance of the machines and availability of
parts.
-With said assurance and warranty, and relying on
the seller-assignor's skill and judgment, petitionercorporation through petitioners Wee and Vergara,
president and vice-president, respectively, agreed to
purchase on installment said two (2) units of "Used"
Allis Crawler Tractors. It also paid the down payment
of
Two
Hundred
Ten
Thousand
Pesos
(P210,000.00).
-Seller-assignor issued the sales invoice for the two
(2) units of tractors. At the same time, the deed of

sale with chattel mortgage with promissory note was
executed. Simultaneously with the execution of the
deed of sale with chattel mortgage with promissory
note, the seller-assignor, by means of a deed of
assignment, assigned its rights and interest in the
chattel mortgage in favor of the respondent (IFC
Leasing).
-Barely fourteen (14) days had elapsed after their
delivery when one of the tractors broke down and
after another nine (9) days, the other tractor likewise
broke down.
-Vergara informed seller-assignor and asked for
prompt action. The seller-assignor sent to the jobsite
its mechanics to conduct the necessary repairs, 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.
-Since the tractors were no longer serviceable, Wee
asked the seller-assignor to pull out the units and
have them reconditioned, and thereafter to offer
them for sale. The proceeds were to be given to the
respondent and the excess, if any, to be divided
between the seller-assignor and petitionercorporation which offered to bear one-half (1/2) of
the reconditioning cost.
-No response was received by the petitionercorporation and despite several follow-up calls, the
seller-assignor did nothing with regard to the
request.

the seller-assignor which is the Industrial Products Marketing. -It is not necessary to implead VMS as a party to the case because VMS was earlier sued by her for "breach of contract with damages" before RTC Olongapo City. -The respondent knew that when the tractors turned out to be defective. it would be subject to the defense of failure of consideration and cannot recover the purchase price from the petitioners. This note was subsequently endorsed to the respondent Filinvest Finance & Leasing Corporation which financed the purchase. . 1980 until the said sum is fully paid. v. Imputing fraud. the instrument here was determined as not being a negotiable instrument because of the lack of the words of negotiability.138. * Petitioner’s Arguments -In the light of the provision of the law on sales by description which she alleges is applicable..Quevedo B Camille Umali -IFC filed a complaint against Consolidated for the amount of the PN. " Disposition Petition granted SALAS V CA. We think the buyer-Mr. which took the same with actual knowledge of the foregoing facts so that its action in taking the instrument amounted to bad faith. -CA merely modified ordering the defendant to pay the plaintiff the sum of P54. General Public-should have some protection somewhere along the line. -TC and IAC granted the complaint... subject to all defenses which the petitioners may raise against the sellerassignor. -Both parties appealed to the CA..20 as evidenced by a promissory note. -Salas defaulted in her installments allegedly due to a discrepancy in the engine and chassis numbers of the vehicle delivered to her and those indicated in the sales invoice. the respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase price was not unconditional. 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. -Even assuming for the sake of argument that the promissory note is negotiable. & Mrs. bad faith and misrepresentation against VMS for having delivered a different vehicle to petitioner. Such court originally ordered Salas to pay the remaining balance of the motor vehicle installments.40 with interest thereon at the rate of 14% from Oct 2. FILINVEST FINANCE AND LEASING CORP (1990) ~RACH~ NATURE Petition for review on certiorari FACTS -Petitioner Juanita Salas bought a motor vehicle from the Violago Motor Sales Corporation (VMS) for P58.. For Section 58 of the Negotiable Instruments Law provides that "in the hands of any holder other than a holder in due course. and therefore.908. the respondent.30 at 14% per annum from Oct 2. 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. is not a holder in due course. -Filinvest then filed a case for a sum of money against Salas. nevertheless... and that it was subject to the condition that the tractors sold were not defective. which is herein petitioner Consolidated Plywood Industries. cannot be regarded as a holder in due course of said note.NEGO . which is the respondent. this was later ." 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. Industrial Products Marketing. (first of all. and the assigneefinancing company. the latter prayed for a reversal so that she may be absolved from the contract. no contract ever existed between her and VMS and therefore none had been assigned in favor of private respondent.. (Mutual Finance Co.. -As against the argument that such a rule would seriously affect "a certain mode of transacting business adopted throughout the State. Inc. which fact she discovered when the vehicle figured in an accident. 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. 1980 until full payment. a financing company which actively participated in the sale on installment of the subject two Allis Crawler tractors. Martin) -The respondent. 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. the court discussed why the respondent cannot be considered a holder in the course had the instrument been negotiable) -A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note. a negotiable instrument is subject to the same defenses as if it were nonnegotiable.414. RTC ruled in favor of Filinvest and ordered Salas to pay the plaintiff the sum of P28. -We subscribe to the view of Campos and Campos that a financing company is not a holder in good faith as to the buyer. certificate of registration and deed of chattel mortgage. -Therefore. ISSUE WON the respondent is a holder in due course HELD: No.

-the said contract stated the ff. [c] it is payable at a fixed or determinable future time which is "P1. this issue cannot be resolved since VMS was never impleaded as a party. the first installment payable one month from date hereof. and free from defenses available to prior parties among themselves. the assignor-vendor. as inevitable as it is clearly established. Said note is a negotiable instrument separate and apart from this contract. judgment in the "breach of contract" suit cannot be invoked as an authority as it is still pending in CA. This being so. [c] it took the same in good faith and for value. and [d] when it was negotiated to Filinvest. Reasoning Requisites under the law have been complied with: [a] it is in writing and signed by the maker Juanita Salas. There must always be a specified person named in the instrument and 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.855. the due execution and genuineness of which she never denied under oath is. [b] it contains an unconditional promise to pay the amount of P58. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument.70. [e] the drawee is named or indicated with certainty.138. must be payable to "order" or "bearer". YES Reasoning Filinvest had taken the instrument under the ff conditions: [a] it is complete and regular upon its face. (CCC) was asked to finance the transaction. -Filinvest also holds the instrument free from any defect of title of prior parties. 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. there are only two ways by which an instrument may be made payable to order. counterclaim or cross complaint by me. 2. -Petitioner's liability on the promissory note. . Ermac Company (Ermac) offered to sell to OCMW a Ferracute press for $5k (which Ermac would buy from a supplier).Even assuming that there was deception made upon Salas. -It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and Leasing Corporation and it is an indorsement of the entire instrument. Ermac obtained similar financing from CCC and CCC had some blank forms supplied to Ermac.” Disposition Assailed decision is hereby AFFIRMED.614. 21. Commercial Credit Corp. [b] it became the holder thereof before it was overdue. where the assignee merely steps into the shoes of. and without notice that it had previously been dishonored. WON the promissory note is a negotiable instrument (which will bar completely all the available defenses of Salas against Filinvest) 2. (re: deferred payments): “the balance shown to be due hereunder (evidenced by my note of even date to your order) is payable in 12 equal consecutive installments of $355. Such decision is still pending consideration in the CA. is open to all defenses available against and can enforce payment only to the same extent as.NEGO . *Respondent’s Comment -Issues and allegations are a mere rehash of those presented and already passed upon by the CA.09 each. SC: “We can only extend our sympathies to Salas in this unfortunate incident. the latter had no notice of any infirmity in the instrument or defect in the title of VMS Corporation.Quevedo B Camille Umali reversed by the same court ordering VMS instead to return to Salas the sum of P17. Salas cannot set up against respondent the defense of nullity of the contract of sale between her and VMS. -before the assignment. even though at the time of execution it may be temporarily attached hereto by perforation or otherwise. 1983. 1980 thru and inclusive of Feb. WON Filinvest is a holder in due course HELD 1. or order and as such. Under Sec 8 of the Negotiable Instruments Law. under the foregoing factual milieu.” . and CCC agreed to do so after an assignment of the contract of sale between OCMW and Ermac was made in favor of CCC. Without the words "or order or "to the order of". the instrument is payable only to the person designated therein and is therefore non-negotiable.95 monthly for 36 months due and payable on the 21 st day of each month starting March 21. YES Ratio The instrument in order to be considered negotiable must contain the so-called "words of negotiability i.e. and may enforce payment of the instrument for the full amount thereof. ISSUE 1. **This is not a simple case of assignment of credit as petitioner would have it appear.” -Latter part of the contract (in a detachable portion): “This contract may be assigned and/or said note may be negotiated without notice to me and when assigned and/or negotiated shall be free from any defense. One of these forms entitled “Industrial Conditional Sales Contract” is the agreement between Ermac (to sell the press) and OCMW (to buy the press).20.." [d] it is payable to Violago Motor Sales Corporation. COMMERCIAL CREDIT CORP V ORANGE COUNTY MACHINE WORKS (1950) ~cha~ NATURE Appeal from judgment FACTS -Orange County Machine Works (OCMW) was in the market for a Ferracute press.

does not deprive him of protection from the law. does not lose status because it was given in connection with a conditional sales contract. CCC dealt chiefly with Ermac. who later sold it to E. Reasoning. it cannot be regarded as a holder in due course of the note given in the transaction and the defense of failure of consideration may properly be maintained. it was dishonored. CCC gave Ermac a check for $4. the finance company was a moving force in the transaction from its very inception and acted as a party to it. the sales contract. It knew all of the details of the transaction. Reasoning -The court said that while it can be seen that from Merritt’s testimony that the note was obtained from her fraudulently. -OCMW never obtained the press for which it bargained and.512. Ermac assigned the contract and endorsed the note to CCC. OCMW is estopped from asserting failure of consideration because it knew the purpose and legal effect of the note. CCC supplied Ermac with the forms and was twice consulted by telephone as to the impeding deal. nor later detachment from. as against CCC. the future payee.NEGO . (2) the conditional sales contract and the attached note must be construed as constituting a single document. he raised a question regarding the said portion below the line but was told that it was just “part of the document”. OCMW demands $1. ISSUE WON Ham was a holder in due course HELD: YES Ratio A large discount does not. there was no evidence to show that Ham had notice of such. standing alone. At the time the president of OCMW signed the contract and note. CCC advanced money to Ermac with the understanding that the agreement and the note would be assigned or endorsed to it immediately. (3) the note is a separate and distinct instrument negotiable in form. financing was applied for because Ermac did not have the money to buy the machinery which OCMW desired to obtain. Such fact. HAM V MERITT (1912) ~monch~ FACTS -Eva Merritt executed a note for $300 to Southern Hospital Assn. counseling and aiding the future vendor-payee. Ermac did not pay CCC. Disposition.50 from Ermac and declaratory relief from CCC. by itself. Throughout the entire transaction. -Ham sued Merritt to recover from the note. the future maker. Commercial Credit knew the financial status of Ermac. constitute notice of fraud.261 it paid for the assignment. Moreover. Merritt claims it was obtained from her thru fraud. -OCMW paid $1. ISSUE WON CCC is a holder in due course (and so can recover from CCC – the maker) HELD: NO.50 to Ermac. In a very real sense. The latter assigned it before maturity to Asa Brunson. rather than with OCMW. -Arguments of CCC: (1) the note is negotiable in form. Ermac deposited the check to its bank and sent the said check to the supplier of the Ferracute press that would be sold to OCMW. (2) the character of an otherwise negotiable note is not destroyed by reason of simultaneous assignment of a conditional sales contract to the endorsee of the note.512. Ermac did not pay. Ratio. and (2) knew that the press was not delivered to OCMW. The sales contract is assignable but not negotiable. Judgment affirmed.261 in return. Ham for $100.Quevedo B Camille Umali …a dotted or perforated line could be detached from it. so subject to defenses…(3) CCC was an original party to the original transaction so it took title subject to all equities or defenses existing in its favor against Ermac. there is no more obligation upon it to pay the note than there is to pay the installments specified in the contract. Ham claims that he had no notice of such fraud and was therefore a holder in due course. Indeed. -The fact that the note was sold to Ham for only $100 does not constitute as notice of fraud. for OCMW against CCC (So CCC had no claims against OCMW). -TC: for CCC against Ermac. -Arguments of OCMW: (1) CCC did not acquire the instrument in good faith and for value and had notice of infirmities in the instrument and the defect in the title of Ermac. the court also notes that such large discount could be of great weight if was supported by some other evidence. However.C. The supplier did not deliver the Ferracute press. when the check was presented by the supplier. -CCC filed complaint vs. Disposition Judgment reversed . When a finance company actively participates in a transaction of this type from its inception. the note had not been detached. status not changed because of original physical attachment to. At the time the contract was delivered to CCC. However. CCC not a holder in due course because (1) it knew at the time it paid Ermac for the assignment that Ermac did not own the press it sells. OCMW and Ermac for the $4.

Dubois sued Pennoyer.NEGO . and an indorsement of the note automatically assigns the mortgage. FOSTER V AGUSTANNA COLL. ILL. and the mortgage is a mere incident to the note. and refused to pay upon maturity. When Dubois gave the COD for the notes . was the indorsee and holder which is a prima facie showing that it is a holder in due course. Dubois may have protected itself by enjoining transfer or impounding the COD. and the attempted assignment of the mortgage without the transfer of the debt it secures is a nullity. The Court believes that since Pennoyer put the notes into circulation and contended they were procured by fraud. certificate of deposit (COD). Augustanna had no actual knowledge that the note and mortgage had therefore been assigned to Foster. After execution and issuance. To avoid the effects of Sec. 31. It may be argued that upon notice of fraud. dated June 21. paid for by the latter’s two notes payable to the order of the seller. but did at the time it discharged the COD by payment. as collateral security for a loan. -The doctrine of constructive notice is applicable only to person who is dealing with the land itself. Dubois had no notice of the defense of fraud at the time of issuance. Pennoyer claimed Dubois was not a holder in due course. It is well-settled rule that where a mortgage given to secure a negotiable PN. Dubois’ evidence was sufficient to establish that the FNBC. Wyoming negotiated the COD to the First National Bank of Cody (FNBC). On July 22. 54 arguing that the Dubois was a holder in due course as it had notice of fraud before it paid anything on the COD. 54. when it acquired the notes. payable to Wyoming 9 months from date. the payee negotiated them to Dubois which paid with its own notes. which is not the case here. (1932) ~athe~ FACTS -Hopkins executed and delivered to Aurelius-Swanson (payee) their negotiable instrument secured by mortgage. & THEOLOGICAL SEMINARY OF ROCK ISLAND. 1920 and payable 6 months later. to whom the COD was paid. bringing proceedings for such a purpose was his duty. its right to protection as a holder in due course was the same as if it had paid in money. and both are bought within the purview of the statutes. hence the latter’s personal defense of fraud was available. Swanson assigned the note and mortgage to Foster not by indorsement but by assignment in a separate instrument duly recorded. “it paid the full amount thereof”. Augustanna was a purchaser of the note not the mortgage. Foster redelivered the note and mortgage to Swanson as custodian. Dubois was required to prove that the COD had been negotiated and that it had paid or had become liable to pay someone other than the payee. HELD -Pennoyer cites Sec. the maker learned of the fraud.Quevedo B Camille Umali PENNOYER V DUBOIS STATE BANK (1926) ~kiyo~ FACTS -The Wyoming Live Stock Loan Company sold shares of its capital stock by fraud to Pennoyer. if it was under an obligation to pay the COD when due. Augustanna had no actual knowledge of the assignment to Foster. Dubois is unaffected by the statute if. the note imparts its negotiable character to the mortgagee. On Dec. . Swanson became bankrupt. Swanson subsequently assigned the note and mortgage to Augustanna. HELD -Doctrine of constructive notice does not apply to Foster. Foster sued Augustanna. it took the notes for “value”.

HELD NO. It should have been considered that Clark was not a depositor in plaintiff bank and had no account there. when an alteration or erasure appears suspicious on its face. Mears had apparent authority and Mrs. Bronson should assume. Instead of writing the name of the bank as payee.Quevedo B Camille Umali MILES CITY BANK V ASKIN (1947) ~giulia~ FACTS -George Askin paid his losses in a game of black jack to JW Clark by 2 checks. Stetson asked him if he had a right to do so. Askin was sued on one of the checks (the date was changed). -TC erred in refusing evidence offered to prove that in cashing the check as it did plaintiff bank departed from the usual course of business adopted and usually adhered to by the plaintiff. Defendant appealed. TC reversed. the insistence of Clark in obtaining the cash immediately. Stetson. Each were signed by Askin as drawer. that the check was written in pencil. -The ruling of the TC evidence a presumption by the court that plaintiff was a holder in due course. The court found that a casual examination of the check disclosed that it had been changed after having been written. The words and figures showing the amount are written with a different pencil than the balance of the writing. effected the exchange of Bronson’s land in Flint with a farm. and the cause remanded for new trial BRONSON V STETSON (1930) ~ajang~ FACTS -Bronson’s agent.000. -For these reasons. Stetson is a holder in due course. Court held that the evidence was insufficient to sustain the verdict and judgment. it demands explanation. such determination to be based upon its findings as to whether. and Clark filled the remaining blanks. -However. it can be said that Mrs. which are contrary to law.NEGO . Mears. -Alterations and erasures of written instruments were presumed to have been made at or prior to the time of their execution. Stetson cannot be held to be a holder in due course. (1) the clerk was. it called for $5. but at the time it was negotiated. Mears wrote Mrs. Stetson’s name. ISSUE WON Mrs. Beslin ruled that. Stetson was ignorant of the limitation. that the teller who cashed the check was not acquainted with the defendant or his signature and he was ignorant of the nature of Clark's business. So Bronson made a note made of even date for $800 payable in three years and secured by a mortgage. At first glance. it must be filled up strictly in accordance with the authority given and within reasonable time. -Mears received the papers. -Later. payable to Clark's order and drawn on the Bank of Baker. There were obvious signs of erasure of the words and figures originally occupying such spaces. Stetson paid Mears $800. one for $150 and another for $1. was such alteration so manifest and visible as to reasonable impart notice to plaintiff of an irregularity in the check. Stetson. -The jury found for the plaintiff. Askin signed his own name and inserted the numerals in lead pencil. . Mrs. background or financial responsibility. and (2) if so. It was agreed that Mears was authorized to fill the blanks with the name of Union Trust Savings Bank. and the apparent alterations of the check. and he said he had coz he was a notary public. -It has been held that the one who entrusts an incomplete instrument to another is bound by anyone who relies in good faith on the genuineness of the instrument although the person entrusted with completing and delivering the instrument exceeded his authority. Montana. fraudulently represented that there was an $800 mortgage on the land. Stetson knew that the name on the note was just written by Mears at the time she paid him the money. the court turns with reluctance from this. So Mrs. He exceeded his authority in writing the name of the Mrs. Harrington Nat. Mears was given parol authority to fill in the blank.000. HELD -The ultimate question of WON plaintiff was a holder in due course must be determined by the just. Nank v. The name of the payee and the mortgagee were left blank. “in order however that any such instrument may be enforced. in fact materially altered subsequent to its execution and delivery. Dispositive The judgment is reversed. associations. However. Mrs. and a new trial must be had to present the decisive issues. There is no question that the papers were fraudulently obtained by Mears and that Mrs. Stetson is a holder in due course free from all equities and defenses that could be set up against her and could thus collect from Bronson. and turned them over to defendant Mrs.” Thus. which he said. Mears.

1918. The cothat were overdue when he acquired the note. nor does it reveal such -The co-operative. he can be a holder in due course as to future -Shidler. Such being the case. -The court just stated that this conclusion is in accord with the great weight of authority and is in accord with the spirit and intent of the NIL (there was no discussion on how the conclusion is in accord with the spirit…) Dispositive Judgment affirmed. the co-operative installment note are unpaid when the note is negotiated negotiated the notes to Bliss to secure payment of the does not convey knowledge to the transferee of a co-operative’s note. Bliss sued principal disconnected from other facts does not prevent the makers on their notes. the three notes. delay in the payment of other installments that have -On the issue of WON Bliss had notice of the co-operative’s been paid in the past. -The mere fact that one or more installments of an -Later. an installment note who has knowledge that a past due -On the issue of the co-operative’s defense of failure of installment was unpaid when he acquired the note “is consideration (its failure to perform its obligations under put on inquiry and there may be some defenses against the contracts). Thus. . knowledge of circumstances that it can be said that the was unable to continue to perform its obligation in its holder of the note shut his eyes to the facts and in bad contracts with the producers. 1915. with no acceleration clause. evidence show that Bliss took the notes without notice -Agricultural producers executed non-bearing negotiable that the first installment had not been paid. Barbour is subject to any defense Finke might have against the original. BARBOUR V FINKE (1924) ~tito romy~ NATURE: Petition for Certiorari FACTS -In January 11. the note was endorsed and the mortgage was assigned to Barbour. notes. -A notice of default in the payment of an installment of -The co-operative defaulted in payment to Bliss. At the time of the endorsement.NEGO .000 payable on or before ten years from the date of the note. The stated interest rate was six percent per annum payable annually on January 11 of each year. The three makers defaulted in the payment of dates have been accelerated. Barbour at some point filed an action for the foreclosure of the mortgage. -The inquiry may reveal that default is fully explained by ISSUE: WON Bliss was a holder in due course. held by Bliss. she is also a holder in due course of the mortgage. 1917. Court said that it is a good defense to an it and… cannot be a holder in due course” cannot be action on an instrument by one not a holder in due reconciled with the provisions of the Uniform Negotiable course Instruments Act. it may appear that prompt payment course as to any part of the note when the transfer has has been waived and that the delay with regard to one been made after the maturity of one or more but less or more past due installments does not exceed the than all of the installments. dissent: contracts were entered into by the cooperative with -It is unnecessary to remand the case since the finding and many producers. the transferee from being a holder in due course. including the makers of faith sought to avoid the knowledge of a defense. ISSUE: WON Barbour was a holder in due course of both the note and mortgage HELD: YES Ratio The mere fact that interest due is unpaid. As Barbour is a holder in due course of the note. -In March. defense against the note. The lower court ruled for Barbour. Hence the transfer of the debt secured by the mortgage carries with it the security. the principal not being due. in ten annual -A holder cannot be a holder in due course as to installments installments. while the note is still unpaid. Winchester and Galbreath each executed one of installments. which are not overdue unless their maturity the notes. Finke issued a negotiable note for $3.Quevedo B Camille Umali BLISS V CALIFORNIA CO-OP PRODUCERS (1947) ~glaisa~ FACTS -The Court ordered the case to be retried upon the issue of -The California Co-op Producers was organized to process notice of non-payment of first installment at the time of and ship agricultural products through the use of the transfer and that judgment be made according to the shipping terminal facilities. The note was likewise secured by a real estate mortgage. But Finke alleged that Barbour is not a holder in due course based on the fact that the non-payment of interest amounted to a dishonor of the note and that Barbour had notice of this as the same is clearly indicated on the note via the notation. It is also a settled rule of the jurisdiction that a mortgage is merely an accident to the note which it secures. Growers of agricultural views expressed. payable to the co-operative. the first installment. Marketing TRAYNOR. by reason of insolvency and bankruptcy. a notation on the note stated that interest thereon was up to October 1. does not render the note dishonored. circumstances and it constitutes no warning that the HELD maker has defense with regard to installments to mature -The transferee of an installment note is not a holder in due in the future. failure to pay the first installment. but that operative agreed to furnish facilities. products were to be solicited to use the facilities of the corporation in the marketing of their products. the findings are -The rule set forth in the majority opinion that a purchaser of unsatisfactory.

Reasoning -The term “overdue” in a demand bill of exchange (as in this case) is applied when a bill has come into the hands of the indorser so long after its issue as to charge him with notice of dishonor. WON Idaho State Bank may claim on the renewal note made by Wright 2. accepting. IDAHO STATE BANK V HOOPER SUGAR CO (1929) ~maia~ FACTS Hooper Sugar made a note payable to Wright for $30. -General rule is that a bill. payable on demand. against whom the drawer. Thus. 1882 – 4 months and 23 days after the draft became due. having in view ordinary business usages and the purposes which paper of that class is intended to subserve. it must appear that the alteration was made with fraudulent intent. Wright then indorsed the note in blank on Sept. It follows then that such note was avoided in the hands of ISB Obiter: it is further alleged by Wright (as a defendant) that not only is IBS precluded from recovery on the altered renewal note. had an offset. (2) by changing the interest rate from 6% to 7% p. 2. the cashier of NCBSL altered the renewal note (1) by erasing the name of his bank as payee and inserting that of a bank in Pocatello. also for $30. In Oct. WON Idaho State Bank may claim on the note made by Hooper from Wright as an indorser HELD 1. without any explanation of the reason. relying on the provision “ where an instrument is issued. with any defense or set-off which the drawer had against it in the hands of Edison. Wright also forwarded the note made by Hooper to NCBSL but allegedly for a different purpose -However.000. or indorsing it. such note as to Wright became a demand note.Quevedo A Camille Umali LE DUE V FIRST NAT’L BANK OF KASSON (1883) ~owen~ FACTS -Payee of a draft indorsed it to Edison. the same note being the collateral to the renewal note.” -the interpretation of the above-quoted provision can only mean one thing: see the ratio above. Idaho. 1920.a. so as to charge it in his hands. 1919. ISSUE 1. and (3) by adding a recital that the note (issued by Hooper) was deposited as collateral security for the renewal note. While a material alteration of a note is a defense to an action on the instrument itself. -citing the Harvard Law Review: “the instrument takes a new lease of life with respect to an indorser after maturity. accepted.000. or indorsed when it is overdue. and thus subject it in his hands to the defenses which the drawer had against it in the hands of the assignor. the defendant bank. On the same date. 1920 (1 year after). and his equitable defenses are not let in until a reasonable time after he indorses. payable in 6 mos.). On alterations on the renewal note made by Wright Ratio When a mere inspection of the instrument shows that it has been altered. it is. there is no finding that Wright’s renewal note was altered with fraudulent intention. Wright remains liable on the original obligation to ISB independent of the altered renewal note. this draft which is outstanding nearly 5 months after its date. but that such alteration absolved him ultimately of the principal obligation for which the renewal note was given -the court rejected this contention and said that although the alteration was indeed material and intentionally made. -Idaho State Bank (ISB) now claims as holder of the note (made by Hooper) from Hooper and Wright. 5. Wright posits that the note was overdue at the time it reached the hands of IBS. payable on demand. as regards the person so issuing. As a demand note it did not become overdue as to Wright until a reasonable length of time after it was indorsed by him.. NO.000 (note details: issued on Sept. ISSUE WON the draft is overdue and dishonored HELD YES Ratio Indorsers subsequent to Edison took it subject to the same offset to which it was subject in his hands. thus IBS may not be considered as a holder in due course to such note. On the other hand. a purchaser is not a holder in due course because such note is not regular on its face Reasoning – ISB is not a holder in due course of the altered renewal note. He then transferred the note to the Pocatello Bank for $30. note or check. he renewed a personal note that was held by National City Bank of Salt Lake (NCBSL). 2. But. the Pocatello Bank sold the 2 notes to Idaho State Bank (plaintiff). Edison indorsed the draft to Jordan on March 8. the trial court is fully justified in holding it overdue and dishonored when Jordan took it. although the . YES Ratio When Wright indorsed the note and delivered it to NCBSL after its maturity date. IBS insists that the note was not overdue when received by it. but this does not mean that Wright is freed from the principal obligation which gave rise to the renewal note. Reasoning Next in issue is the liability of Wright as an indorser of the note made by Hooper. in order that such an alteration may be a bar to recovery on the original debt. or the hands of those who hold under him. must be presented for payment within reasonable time.NEGO . 11.

The check was drawn and delivered on or about March 25.NEGO . Disposition Wright is liable to IBS. 1911. Counsel for Sweeney goes as far as arguing that a postdated check is not a negotiable instrument if taken before the date on which demand can be made for payment but is simply an assignment of rights of the payee and opens the check to all equities and defenses. TRIPHONOFF V SWEENEY (1913) ~bry_sj~ FACTS -J. and as regards Wright.The drawer is liable to the innocent indorsee. The drawee again dishonored the bill.74 payable to the order of DAN MALCHEFF. The indorsee immediately gave notice of dishonor to the drawer. it is payable on the day it purports to be drawn even though it be negotiated beforehand. when Wright indorsed the note after its maturity. It is full and complete on its face as it satisfies the requirements of the law for an instrument to be negotiable. The check was DISHONORED UPON PRESENTMENT about APRIL 17.294. when a check is postdated. … A contract after maturity has a special maturity of its own.1913 for £1000 payable to the order of J. It is settled that the instrument is not rendered invalid by its antedating or postdating provided that it is not done for an illegal or fraudulent purpose. and looking merely at the names upon it. 1911 but was POSTDATED APRIL 15. Whether or not postdating of the check amounts to a notice of the infirmity on the instrument as to disqualify the holder from becoming a HIDC HELD 1. i. Thorne. SWEENEY CONSTRUCTION (the drawer) stopped payment for the check on the ground that Malcheff (the named payee). -Triphonoff (INDORSER) sued the drawer J.Quevedo B Camille Umali paper is apparently overdue. Whether or not the check in this case is NOT a negotiable instrument.” -in this case.1913. a reasonable time after execution. It is noteworthy that the drawing of a postdated check is an everyday occurrence in the commercial world and the uniform understanding of the parties is that. 1911 who took it for value and in good faith. he is bound to communicate this to the drawer. -Malcheff negotiated it to TRIPHONOFF before April 15. There was judgment for the plaintiff. On June 20. 1911. and bona fide purchasers within that time will be protected from all equities of the party who signed. NO. having no knowledge of any circumstance to vitiate it. The indorsee sued the drawer. 1813. NO. The check is a negotiable instrument. namely. HELD When party holding a bill of exchange receives notice of its dishonor.W. But a bill of exchange is NOT a void security in the hands of an innocent indorsee who has no knowledge that the bill has ever been dishonored because a former holder has omitted to give notice to the drawer that the bill has ever been refused acceptance. he gave the note a second maturity date as to him. Sweeney Construction Company drew its check on the US National Bank of Portland Oregon for USD 2. No notice of dishonor by nonacceptance was given to the drawer. It is worthy to note that the law does not require an instrument to be dated. 1813 and due July 19. George & Co.W. who had no knowledge of the prior dishonor by non-acceptance .W. a reasonable time. the payee presented the bill to the drawee for acceptance but the bill was then dishonored by non-acceptance . J. ISSUE 1.e. thus effectively made the note “on demand” as between him and IBS). The plaintiff indorsee was not as a matter of law put into inquiry by reason of the check’s being negotiated prior to day of its date. dated June 19. even equitable defenses. must honor the note (since he indorsed it after the maturity. DUNN V O’KEEFEE (1816) ~dahlia~ FACTS J and T Dunn drew a bill of exchange on Ricketts. IBS received the note free from any equities of Wright founded upon the mere fact that the note appeared to be overdue. 2. the payee negotiated the bill to the plaintiff Mary O'Keefe. an employee of the drawer. He issued it in an imperfect state and cannot justly complain of the neglect of any indorsee who takes the bill in his state. after the transfer. 2. ISSUE WON the drawer is liable to the indorsee(who had no knowledge of the prior dishonor) given that the payee did not give the drawer a notice of dishonor. ISB became such holder within that reasonable time. Sinclair and issued to the payee for value. The law itself does not proscribe postdating of the check. SWEENEY. obtained the check by means of false and forged estimates of work done by him for the drawer. Subsequently and on July 13. The latter argued that Triphonoff should have been put on notice of the infirmity in the instrument or defect in the tile of MALCHEFF by the fact that the check was POSTDATED. .

The note was taken in usual course. No question is made but that they were false and fraudlent. being the payee of the note. -From July 6. it cannot be conceived how a reasonable man could think that the note was taken otherwise than in good faith. -On sept 15. There was no evidence that anyone other than Elliot knew of this situation at the time the note in question was given. Elliot paid the interest on the note indorsed January 1. which provides that an instrument is negotiated when it is transferred from person to another in such a manner as to constitute the transferee the holder thereof. -He had 2 check accounts with the plaintiff bank. This overdrew the lumber company’s account at the Waterbury Bank about $8. is not a holder in due course as a matter of law. for full value and without circumstances calling for or warranting inquiry respecting the occasion for giving it. so far as appeared. he died in the latter part of January 1920. The movement of these checks was so timed that want of funds did not appear on the books of either bank. the defendant called at the plaintiff ank on business which was transacted with Elliot in the director’s room.86. if payable to order. To cover this check when returned. when for the first time. it is negotiated by delivery. He was also interested in a lumber business conducted as the W. -On the day the note was given. 1919. which he deposited in his personal account. He also had an account as treasurer of the lumber company with the Waterbury Savings Bank.NEGO . WON plaintiff (being the payee) is a holder in due course 2. This being so. the remaining sentence of the section. 1920. WON plaintiff took the check in good faith HELD: 1.14. ISSUE 1. it was discovered that he was insolvent.000 which had not been returned to the bank when this adjustment was made. 2. In the course of the interview Elliot procured the defendant to sign a note for his (Elliot’s) accommodation.594. Elliot returned with the check which the defendant indorsed in blank and delivered to Elliott.750 from this to his personal account. an arrangement was entered into by which the plaintiff made a loan to the lumber company which was deposited in its account with the plaintiff. in the circumstances. one his personal account and the other an account as Treasurer of the lumber company. it can be thought that the cashier had any reason to suspect fraud in the inception of the note or any wrongdoing in the transaction. it is negotiated by the indorsement of the holder completed by delivery” was not intended to include all the ways in which an instrument might be negotiated. he drew a check to himself on the Waterbury Bank for a like amount. The latter deposited the check to the credit of the lumber company in the Waterbury Bank on Sept 20. leaving a balance to his credit of $155.Quevedo B Camille Umali HOWARD NAT’L BANK V WILSON (1923) ~mel~ NATURE Action by Howard National Bank against Graham Wilson and another. YES -That a payee is capable of being a holder in due course at common law has been held almost without dissent.700. FACTS -Elliot was acting president of the bank and had general oversight and management of its affairs. to sept 18. E. . This view is confirmed by the definition of “negotiation” found in Sec 30 of the act. Elliot Lumber Company and acted as its treasurer. 1919. Assuming that the evidence had the tendency claimed for it. As said. YES -Evidence was uncontradicted that Elliot had authority and was accustomed to approve and direct loans as this loan was approved and directed. and that the defendant was a regular customer of the bank. and Elliot transferred $14. Elliot had drawn a check on his personal account for $10. -Defendant insists that the plaintiff. his personal account with the plaintiff was overdrawn in increasing amounts until the overdraft amounted to $14. “if payable to bearer. The note was executed and Elliot took it out into the bank and directed the assistant cashier to make a cashier’s check in favor of the defendant for the amount of the note. we are at loss to see how. nor to restrict the comprehensive terms of the preceding sentence.

wherein the petitioner required the private respondent to issue a check worth P15. Instead. WON there was indeed an agreement or arrangement entered into between the parties wherein the Bank required Marasigan to issue a postdated check in the amount of P15K as payment of his overdue accounts. As quoted earlier. .84 was not paid in due time. This is especially true in the case of a postdated check. It did not comply with his obligation under the arrangement with Miss Lorenzo. paid the bill by using her own credit card a Unibankard. 2. with the condition that his credit card will not be suspended? 2. subject to the terms and conditions stipulated in the contract (Exh. 100-012-5534 with a credit limit of P3. However we find that the private respondent was not able to comply with this obligation. Their contractual relations went on smoothly until his statement of account for October 1989 amounting to P8. 3. Petitioner corporation was therefore justified in suspending his credit card. 1-b). As early as 28 October 1989.NEGO . Marasigan filed a case for damages against the bank. RTC ruled for Marasigan’s damage claim but ordered him to pay his obligations. Confidential that he had settled his account with the issuance of the postdated check. Settled is the doctrine that a check is only a substitute for money and not money.000.000. No. There is no showing that the plaintiff received this letter before December 8. Was the issuance of the check effective payment? 3.00 and with a monthly billing every 27th of the month (Exh. He was also told to refrain from further use of his credit card to avoid any inconvenience/embarrassment and that unless he settles his outstanding account with the defendant within 5 days from receipt of the letter.00. N). petitioner allowed private respondent to use his card for several weeks. Mary Ellen Ringler.987. the issuance by the private respondent of the postdated check was not effective payment.Quevedo B Camille Umali BPI VS. the application contained the stipulation that the petitioner could automatically suspend a card whose billing has not been paid for more than thirty days. petitioner could have suspended private respondent’s card outright. No. plaintiff invited some guests on December 8. 1989. Nowhere is it stated in the terms and conditions of the application that there is a need of notice before suspension may be affected as private respondent claims. 1989. the action of the petitioner belies the existence of bad faith. When he presented his credit card to Café Adriatico for the bill amounting to P735. Good faith is presumed and the burden of proving bad faith is on the party alleging it. As such. We agree with the findings of the respondent court. Issues: 1. defendant served plaintiff a letter by ordinary mail informing him of the temporary suspension of the privileges of his credit card and the inclusion of his account number in their Caution List. that there was an arrangement between the parties. was a complimentary member of BECC from February 1988 to February 1989 and was issued Credit Card No. This private respondent failed to do. On November 28. his membership will be permanently cancelled. One of his guests. petitioner cannot be said to have capriciously and arbitrarily canceled the private respondent’s credit card. the delivery of such an instrument does not. In fact. Clearly the purpose of the arrangement between the parties on November 22. 2989. in order that his credit card would not be suspended. Oftentimes he exceeded his credit limits but this was never taken against him by the defendant and even his mode of paying his monthly bills in check was tolerated.000. It was petitioner’s failure to settle his obligation which caused the suspension of his credit card and subsequent dishonor at Café Adriatico. was for the immediate payment of the private respondent’s outstanding account. Thus. Petitioner had even notified private respondent of the impending suspension of his credit card and made special accommodations for him for setting his outstanding account. He can not now pass the blame to the petitioner for not notifying him of the suspension of his card. who is a lawyer by profession. COURT OF APPEALS Facts: Marasigan. Was the bank in bad faith in cancelling Marasigan’s card? Held: 1. No. 1989 and entertained them at Café Adriatico. His membership was renewed for another year and the credit limit was increased to P5. said card was dishonored. by itself operate as payment.00 as payment for the latter’s billings.32.

that as to present plaintiff’s ownership in good faith of the notes. in submitting the second issue.3040 Negotiable Instruments ).NEGO .B. the notes having been indorsed in blank by the payees. Pierce bought said notes for $1800. by purchase from a bona fide holder. and that plaintiff. if the note were invalid as between the maker and the payee. not being a party or participant in the fraud. Plaintiff Appeals FACTS -the action is to recover the balance due on 3 promissory notes.” -It is recognized principle in this jurisdiction that a verdict may be given significance and correctly interpreted by reference to the pleadings. plaintiff bought the notes back from his brother for $2100 and indorsed to plaintiff without recourse (he didn’t want his brother to be involved in the controversy on the notes) -Defendants: there was allegation with evidence tending to show that said notes were procured by false and fraudulent representations on the part of the payees. and reacquires the same from a bona fide holder. it not being essential to such bona fide holder’s protection to extend the principle so far” (Calvert’s Daniel 6th ed. the facts in evidence. become successor to his rights. -On the facts of the present record we are not called on to make definite decision on this question for the reason that his honor. Dispositive The facts in evidence are fully sufficient to require that the issues be submitted to the jury. -There are also decisions which seem to hold that the exception referred to properly applies to one who. dated Feb. has purchased such a note from the payee with knowledge or notice thereof.Quevedo B Camille Umali PIERCE V CARLTON (1922) ~eva~ NATURE From a Judgment for Defendants.1913 and payable June 1 of 1914. -“But this rule is subject to the single exception that. and the charge of the court. executed by MJ Carlton and others payable to Crawford & Ceas. And the plaintiff having received the full benefit of the position. -on the afternoon of Feb. Thos. with an aggregate amount $2100. we think. for $2100. -judgment was rendered for the defendants ISSUE WON the court erred in the refusal to nonsuit for want of any evidence to show participation in the alleged fraud on part of plaintiff.1913 plaintiff sold and delivered said notes to his brother. 11. said Pierce being also a purchaser for value without notice -June 1915. The more natural meaning of the language used would apply the exception to the payee or other taking part in the fraud or illegality which rendered the instrument invalid. And this exception is approved by the general current of authority. the refusal of the court to submit the question in the precise terms of the issue as tendered is not erroneous. was recognized before the enactment of this statute (Sec. -The principle that one who acquires title from a holder in due course may recover. extends to the agent who acts for such a payee in reacquisition of the instrument. not only had full notice and knowledge of the fraud at the time he first acquired said notes. unless defendants has satisfied them by the greater weight of the evidence that plaintiff was a “participant in the fraudulent conduct which the note were secured. he was entitled to their verdict on the issue. -There is doubt if our statute permits an interpretation which would apply to the facts presented in these last cases.Pierce.805). the payee could not himself. and without notice or knowledge of any infirmity affecting the validity of said notes -in Feb.11. -The exception. and that plaintiff’s motion to nonsuit was properly overruled. or to one who aids and abets the payee in the fraud by which the instrument is procured. but that he had actually aided and abetted the payees in the fraudulent conduct and representations by which the note was procured. though he himself may have had notice of the infirmity when he acquired the instrument from such holder. Sec. . HELD: NO. instructed the jury that if present plaintiff held the notes by indorsement for value from a bona fide holder.1915 and 1916.

operates as a transfer of it to the party paying. having been indorsed by the payee (Peerless) in blank. and who is not himself a party to any fraud or illegality affecting the instrument. Disposition Judgment of district court REVERSED. (payee) for the purchase of stocks in the said company. The bank then cashed the note. when the note was delivered to the bank. ISSUE 1. WON the note was discharged by Lill’s payment HELD 1. Sec. since he did not indicate an intention to be bound in some other capacity. was that of an indorser. When the note matured Gleason refused to pay. -Lill then filed an action against Gleason in the district court. -The order note. which was a holder in due course. Having derived his title from the bank.1. and his original status insofar as liability was concerned. The contract of an indorser for the accommodation of the payee is wholly independent of that of the maker. YES. and the payment. upon making payment. instead of extinguishing the instrument. 2. in this instance to the bank. and such indorser. The general rule is that payment by a party other than the principal debtor does not discharge parties prior to the one making the payment.Quevedo B Camille Umali LILL V GLEASON (1914) ~jat~ FACTS -Nelson Gleason (maker) executed and delivered a negotiable P/N due on Sept. and not having been a party to any fraud or illegality affecting the instrument. 1908.191 NIL). 34 NIL).58 NIL). the bank became the holder thereof in due course. NO. As an indorser. Lill became possessed of all the rights of the bank against the maker (Sec. Upon the bank’s demand. has all the rights of such former holder in respect of all parties prior the latter. So Lill went to the bank and wrote his name on the back of the note. Thus. Lill appeals. he thus became secondarily liable to all parties subsequent to the payee. Lill became the bearer and holder (Sec. became payable to bearer and negotiable by delivery (Sec. succeeds to the title and rights of the holder as against the maker. Lill paid the note and received it without indorsement from the bank. to Peerless Machinery Co. . WON Lill is a holder in due course 2. which ruled in favor of the latter and held that Lill was not a holder in due course.NEGO . 58 NIL: xxx But a holder who derives his title through a holder in due course. The note was accompanied by a written contract permitting Gleason to return the stock and receive back his note duly canceled provided he gives the company prior notice of his intentions. And when the bank delivered the note to Lill. *What is Lill’s status as a party to the note and what are his rights as such? Lill became a party to the note for the accommodation of the payee (Peerless). -Why? Because Peerless had indorsed the P/N in blank before maturity (making the originally order instrument into a bearer instrument) and left it with Andale State Bank (bank) as security for money to be advanced to it by the bank but the bank refused to make any advancement on the note until it was indorsed by Michael Lill. Gleason gave notice to Peerless but the note was not returned.

the consideration had completely failed. Fossum. The bank's relation to the instrument became past history when it delivered the document to Fossum. in order to be a holder. J. to deliver a tail shaft." Under the provisions of this section.NEGO . Also. Meanwhile AIPCI had drawn a time draft for $2250. and can have no assistance from the presumption expressed in sec 59 of NIL. to the familiar rule that a person who is not himself a holder in due course may yet recover against the person primarily liable where it appears that such holder derives his title through a holder in due course. ISSUE: WON Fossum is a holder in due course. Fossum personally made the contract which constituted the consideration for the draft. It was stipulated that the tail shaft would be in accordance with the specifications contained in a blueprint given to Fossum on or about Dec 18. can stand on no better footing than his principal with respect to commercial paper growing out of the transaction. acting as agent of AIPCI. and it was incumbent upon him to show that the bank had in fact acquired the instrument for value and under such conditions as would constitute it a holder in due course. procured an order from Fernandez Hermanos. at 60 days. it arrived in Jan 1921. recovery on the draft is out of the question. Disposition Decision affirmed MALCOLM. and it was further understood that the shaft should be shipped from New York in March or April 1920. -Moreover. Under these circumstances. -The TC held. Fossum. -The shaft was found not to be in conformity with the specifications and was incapable of use for its intended purpose. He is entitled to all the rights that pertain to PNB as holder in due course. Under this definition. and with full notice that. 1919. upon Fernandez Hermanos. for the price of the shaft. to the transaction giving origin to the instrument.. He was therefore a party in fact.. to be installed on the ship Romulus. that the consideration for the draft and for its acceptance by Fernandez Hermanos has completely failed. who then instituted this action against Fernandez Hermanos. -He calls attention. and it remained for a time dishonored in PNB Manila. Inc. has all the rights of such former holder in respect of all parties prior to the latter. he procured the instrument to be indorsed by the bank and delivered to himself without the payment of value. Upon discovering this. Fossum was the resident agent in Manila of the American Iron Products Company. and it is evident. albeit acting in a representative capacity. one must be in possession of the note or the bearer thereof. or the bearer thereof. if not in law.Quevedo B Camille Umali FOSSUM V FERNANDEZ HERMANOS (1923) ~kooky~ FACTS -Charles A. 1920. and was accepted by it on Dec 15. -The manufacture and shipment of the shaft was delayed considerably. Rosenbaum) If this action had been instituted by the bank itself. and no action whatever can be maintained on the instrument by AIPCI. -there is not a line of proof tending to show that the bank itself was ever a holder in due course. He was himself a party to the contract which supplied the consideration for the draft. engaged in business in New York City. It was presented to Fernandez Hermanos. . dissenting: -Sec 58 of NIL provides: ". -if the original payee of a note unenforceable for lack of consideration repurchases the instrument after transferring it to a holder in due course. (Night & Day Bank vs. and delivered it to. as between the original parties. a payee or indorsee who is in possession of the draft. To place him on any higher plane would be incompatible with the fundamental conception underlying the relation of principal and agent. without consideration. It was incumbent on Fossum to show that the bank was a holder in due course. and who has notice of all equities emanating therefrom. no presumption arises as to the character in which the bank held the paper. while Fernandez Hermanos is a general commercial partnership engaged in business in the Philippines -on Feb 10. such that an action can be maintained on the instrument HELD: NO -Fossum is far from being a holder in due course. An agent who actually makes a contract. but when the instrument passed out of the possession of the bank and into the possession of Fossum. according to its tenor. although it is a defense against a holder not in due course. 1920. and who is not himself a party to any fraud or illegality affecting the instrument. Later the bank indorsed the draft in blank. The same is true where the instrument is retransferred to an agent of the payee. and payable to Philippine National Bank (PNB). that is. or by any other person against whom the defense of failure of consideration is available. This presumption arises only in favor of a person who is a holder in the sense defined in sec 191 of NIL. the presumption that the bank was a holder in due course would have arisen from the tenor of the draft and the fact that it was in the bank's possession. -The absence or failure of consideration is not a defense against a holder in due course. A holder who derives his title through a holder in due course. . and it is difficult to see how he could strip himself of the character to agent with respect to the origin of the contract and maintain this action in his own name where his principal could not. Fossum is in exactly the same situation as PNB would be. to the effect that every holder is deemed prima facie to be a holder in due course. after it was overdue. . the paper again becomes subject in the payee's hands to the same defenses to which it would have been subject if the paper had never passed through the hands of a holder in due course. however. Fernandez Hermanos refused to pay the draft.

a draft drawn by Snow’s Ltd. N. they were found to contain burlap and not the batiste ordered by Ten Sen Guan.. Disposition Judgment affirmed.” . This requirement is not met by the presumption which the law raises in favor of the holder of a negotiable instrument arising from the mere possession of the instrument. an agent of Snow’s Ltd. Asia Banking only presented a local employee of the bank who testified as to the alleged meaning of certain entries made in the bank records. No.Quevedo B Camille Umali ASIA BANKING CORP V TEN SEN GUAN Y SOBRINOS (1923) ~aida~ FACTS -Asia Banking is a foreign corporation licensed to engage in banking in Manila. . -The maker’s signature was admitted however.J. Att’y. had negotiated the draft with Asia Banking’s counterpart in New York. Van Syckel purchased 3 promissory notes differing only in the amount from one Joseph Ginsberg.The lower court found for the defendant. December 5. VAN SYCKEL V EGG HARBOR COAL & LUMBER CO. J.." -Defendant appealed.. Egg Harbor Coal & Lumber Co. the case is barren of any proof of the genuineness of the signature of the payee. 37220 Due Date Apr. Defendant is a duly registered partnership indebted to Asia Banking in the sum of $10. STREET [concur] -It was fraud on the part of Snow’s Ltd. ISSUE WON Ten Sen Guan is liable for the amount due HELD NO. So Ten Sen Guan declined to receive the goods and left them at customs. -The delivery of the bill of lading and other documents was refused by Asia Banking until Ten Sen Guan accepted the draft.NEGO . $2500 And 00 Cts Dollar With Defalcation for Value Received. but the last mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title. Van Syckel. against the defendants for the amount alleged was presented for acceptance to the defendants. 10 cases of mercerize batiste to be shipped from New York freight prepaid to Manila. (1932) ~lora~ FACTS -The plaintiff. They then returned the bill of lading to Asia Banking and demanded that their acceptance of the draft be cancelled. Kate Mueller (Signed) Pres. Arthur Mueller (Signed) Pres. 1920 – Defendants ordered from Snow’s Ltd. Four months after date We Promise To Pay The Order of Max Orocofsky at the Egg Harbor Commercial Bank. Att’y. To give an authentic account of the transaction. 1929.S. but when it is shown that the title of any person who has negotiated the instrument was defective. -The trial court also found that the acceptance of the draft by the defendants was conditional.51 for and on account of New York draft which was drawn by Snow’s Ltd. -Ten Sen Guan accepted the draft and received delivery of the bill of lading and made entry of the goods at customs. (Signed)” -Plaintiff claims that the notes were not paid and that the amounts therein stated were due and owing. because Asia Banking is not a holder in due course. -February 25. This was done through Asia Banking. -This fraud having been set up in the defendant’s answer and established by proof. -The reason for this is that the guilty maker or holder of an instrument vitiated by fraud of illegality will naturally seek to put it in the hands of some other person in order to cut off the defense to which the instrument is subject. Snow’s Ltd. it became incumbent upon the plaintiff to prove that it occupies the position of bona fide purchaser of the draft for value and without notice. . -When the cases were opened. -The lower court ruled in favor of the plaintiff: proofs showed that the plaintiff was holder of the instrument and that under Section 59 of the NIL. the duty was cast upon the defendant to show a defect as follows: “every holder is deemed prima facie to be a holder in due course.Reverse side: “ Max Orocofsky by J. -The evidence presented to prove that Asia Banking was a holder of the draft for value is not convincing. The plaintiff must go further and prove that it is such a purchaser. Asia Banking had demanded for payment from Ten Sen Guan but the latter refused to do so. -When the merchandise arrived in Manila. it should have been established by competent evidence how Asia Banking acquired the draft. -The form and indorsement of the notes were precise with the following: “$2500 Egg Harbor City. to negotiate the draft in question to the New York branch of Asia Banking. N. the burden is on the holder to prove that he or some person under who he claims acquired the title as a holder in due course. Egg Harbor City. 5. pr.475.G. (Signed) Without recourse C. It was also found that the plaintiff released and discharged the defendants from liability upon the draft because of fraud.

and. The proof of the sigNATUREof the payee was a necessary part of the plaintiff’s case.’s right to charge the account of the payee was not necessarily inconsistent with it being a HIDC.” -Sec. duress.” Before its maturity. -Indifference on the part of the plaintiff as to the outcome of the action would not tend to show that it was not a HIDC. -The burden of establishing that the payee’s title was defective was on the Ryders. the plaintiff. until such proof is offered. notice and protest” and subsequently indorsed in blank also by Morris Rudnick and “E. the holder. Failing to sustain this burden [their testimonial evidence did not convince the court]. subsequent to the payee. it would seem equally to follow that the signature of the payee by way of indorsement is the foundation of the rights of holder in due course. PN was protested for nonpayment. -The Court does not think that it was intended that the presumption should arise under Section 59. or that the person possessed of the physical paper had title thereto. BEACON TRUST CO. V RYDER (1931) ~marge~ FACTS -Promissory note for $20k dated March 18. and the duty of proceeding to offer some proof of fraud or defect specified. there is no duty upon the holder to prove that he or some person under whom he claims acquired the title as holder in due course. They also allege that there was fraudulent transfer and insist that plaintiff prove that it is a HIDC. or that the agent purporting to sign the same was authorized so to do. Such indifference might result from a consciousness that there was a good indorser. or any signature thereto. WON the defendant has the burden of proof of showing defect in the instrument. payable to Morris Rudnick six months after date. NO.NEGO . -In this case. by fraud. Ryder “waiving demand.. The NIL was intended as a codification of the common law rules relating to negotiable instruments. or force and fear. Inc. -Since note obligation do not arise save by the signature of the maker. -A note payable to order is negotiated by the indorsement of the holder completed by delivery. Treas. Ryders were notified. It seems that such proof would be necessary. prior to the indorsement was Max Orocofsky. ISSUE WON plaintiff may be compelled to prove it is a HIDC HELD NO. and title did not pass until indorsed by the payee. -Plaintiff Beacon Trust Co. 19 and 33 of NIL before a presumption would arise of a valid and intentional delivery. No further burden rests upon him to prove that he or some other person under whom he claims acquired the title as HIDC. but were order notes. or when he negotiates it in breach of faith. was purportedly made by Robert L. in the absence of admission.Quevedo B Camille Umali ISSUES 1. declaratory of the common law. -Ryders denied their signatures on the PN and allege that there was no consideration and no delivery. There was however. The same was indorsed in blank by Charles W. has always been required to show the right on which he stands. to prove the sigNATUREof the defendants before the instrument can be received in evidence. is cast upon the party alleging it. or the right to the proceeds thereof. Upon the proof of the genuineness of the necessary signatures the holder’s rights arise as specified in Article 4 of the act. for the most part. HELD 1. GenRule: The holder of a negotiable instrument is deemed prima facie to be a HIDC. -There are no statutes changing the law of evidence in this respect. XCPT if it is shown that the title of some person who has negotiated the instrument was defective (i. or under such circumstances as amount to a fraud. NO. Disposition Judgment Reversed. Morris Rudnick. Company.S. Ryder. for discounting. 2. -Sec 55 of NIL: “the title of a person who negotiated an instrument is defective within the meaning of this Act when he obtained the instrument. 2. 1929. His signature was sufficient indorsement. -The notes were not payable to bearer. The court and the jury had no evidence before them that the signature upon the back of the note was the signature of the payee. when not name in the contract. in procuring essential signatures. no proof of authority of the person purporting to act as agent to affix the signature. in view of Sections 16. they cannot insist that Beacon Trust Co. 59 should be read in the light of Section 55 and the intervening Sections and should be taken to mean that proof having been offered of the genuineness of the maker’s and payee’s signatures. -At common law. said promissory note was delivered by Rudnick to plaintiff Beacon Trust Co. WON plaintiff is a holder in due course. and is. but in the absence of such proof there was nothing to indicate that the instruments in suit had been negotiated. Similarly. prove its prima facie case that it is a HIDC. the holder is deemed to be a holder in due course. one who sues upon a written contract is obliged. unless the fundamental rule of the common law has been changed by the NIL. -On its due date. or for an illegal consideration. or other unlawful means.e. negotiation was “in breach of faith”). . without proof that the essential names on the front and back of an order instrument were signatures of the named persons.

Davis indorsed the instrument (at the time he delivered) and made it payable to bearer. -It is where the fraud is done as to the defendant or maker. the burden is on the holder to prove that he or some other person under whom he claims acquired the title as a holder in due course. But the last mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title. ISSUE 1. Koffler became bound to on the instrument at the time he delivered it to Davis. When the check was presented. -The title of the bearer who negotiated the instrument was defective. The action is not brought against Davis to charge him as indorsee.” but in the body it was th expressed in “Two Hundred and 50/100 Dollars” ($200. after Koffler learned that the Farmers State Bank cashed the check. which cashed it in the usual course of business. 59 of the NIL. the one in words controls in instances of discrepancy. 2. -Davis and Koffler learned that the plaintiff had cashed the check. -There was nothing suspicious which would charge the bank with notice of a defect in title or show lack of good faith. -The consideration was $250. -The fraud in putting a note in circulation which will operate as a defense or charge the burden of proof must be a fraud against the defendant. unless the words are ambiguous. WON Farmers’ State Bank had the burden to prove it took the instrument in good faith. There was nothing about it to challenge the attention of the plaintiff when it was cashed except this discrepancy. -Plaintiff naturally assumed that the bearer was Davis. Disposition Amount is reduced to accord with the sum payable. and the check was intended for that amount. and not where it is done as to the payee or some intermediate holder or party to the paper. -In meantime.NEGO . .Quevedo B Camille Umali FARMERS’ STATE BANK V KOFFLER (1930) ~anton~ NATURE Action to recover on a check which payment was stopped by the drawer.” -October 1: the check was presented to the plaintiff bank. The sum payable was written in figures “$250. but when it is shown that the title of any person who has negotiated the instrument was defective. pursuant to Sec. the bearer turned to the desk for that purpose and made the indorsement. NO -Sec. Koffler is interposing a defense which might have been available to Davis only. and then the check was “lost or stolen.00. 59 considered as a whole does not have the effect of shifting to the plaintiff the burden of proving that he is the holder in due course of the note on which he sues merely by a showing on the part of the defendant that the title to the instrument was defective as against some intermediate indorsee. 1928: Koffler (defendant) drew a check on the Farmer’s and merchant’s bank if New England in which he had an account. FACTS -September 15.—Every holder is deemed prima facie to be holder in due course. -As to the amount. -The bearer of the check for whom the check was cashed had a defective title within Sec. -Here there is no defect n the title so far as the maker is concerned. Judgment is affirmed against Koffler. HELD 1. Sec. -Koffler has no defense against Davis. but the Farmer’s and Merchants’ refused to pay the same pursuant to Koffler’s notification. It is brought against the defendant as maker. -Farmers’ State Bank became the holder of it for value and before it was overdue. YES -Koffler disregarded the last sentence of Sec. -The check was transmitted by plaintiff Farmers’ State Bank in the usual course for collection and remittance. Defendant’s Claim -The instrument was complete and regular upon its face and had never previously been dishonored. 59 of the NIL. -The check was in all aspects regular except for the discrepancy between the figures indicating the sum payable and its statement in writing. 2. Koffler notified the drawee bank (Farmer’s and Merchants’) not to pay the same. 55 of the Negotiable Instruments Law (NIL). The bank was acquainted neither with Davis nor the bearer who presented the check. WON the bearer was a holder in due course.50). he gave Davis another one in lieu of the original. -Davis indorsed the check. payable to the order of Kenneth Davis. 59.

NEGO . it is immaterial whether plaintiff acquired the note prior to its maturity.711 being sued on. the bank objected to the offer of any evidence by the defendant in support of his defense.C. -Plaintiff contends that it acquired the note for valuable consideration before maturity. The understanding was that Barry would not be personally liable on the notes but that the notes would be paid out of the proceeds of the resale and from dividends. ISSUE WON plaintiff bank is a holder in due course HELD NO Ratio There having been no negotiation of the note sued on. under the law merchant. because it was never indorsed by the payee. a transferee of a note payable to order could not & did not obtain a legal title thereto. The note was not indorsed by the payee bank to the plaintiff bank. & independently of the Negotiable Instruments Law. and a holder without such endorsement took it ‘subject to all the equities vested in prior parties. . Thus. & hence is a holder against whom prior equities will not avail. executed demand notes payable to the order of the Bank of Lafayette & Trust Company. -The Bank of Lafayette & Trust Company sold all its assets.’ Disposition Judgment appealed from is affirmed. & the instrument sued on is subject to the same defenses as if it were non-negotiable. It follows that plaintiff cannot be regarded as a holder in due course. These notes were issued in transactions whereby the bank purchased its own stock from stockholders who wished to dispose of them. to the plaintiff. of which he was president. including the Barry note for $8. Barry. except by endorsement of the payee. Reasoning At common law.Quevedo 4 Camille Umali COMMERCIAL BANK OF LA FAYETTE & TRUST CO. The defense of want of consideration is therefore available. the Commercial Bank of Lafayette & Trust Company. V BARRY (1934) ~jonas~ NATURE Appeal from judgment of lower court FACTS -J. Trustee.

who takes with constructive notice of the incapacity. 1915 because he was still a minor. or to make the act of indorsement an irrevocable one. sold the note to Thompson. He indorsed the name of his son without apprising Thompson that he himself was not the payee. -Murray received a note from a brick company in satisfaction to his claim for damages worth $1. -It was not intended to provide that the indorsee should become the owner of the instrument by title indefeasible as against the infant. 378. Effect of indorsement by infant or corporation.NEGO . 2 . with the consent of the minor.750 because of personal injuries. ISSUE WON an infant’s indorsement is void or voidable HELD: Voidable.-The indorsement or assignment of the instrument by a corporation or by an infant passes the property therein. the corporation or infant may incur no liability thereon. The incapacity of the minor cannot be availed of by the prior parties. W. This means that the infant could disaffirm and recover Disposition: Court of Civil Appeals reversed while the chancellor is affirmed. notwithstanding that from want of capacity. -The statement that the infant “passes property therein” entails that the contract of indorsement is not void and that his indorsee has the right to enforce payment from all parties prior to the infant indorser. 22.W.A. -Murray wanted to disaffirm and recover. On October 16. It was invested in a saloon business and was lost. Ratio Sec. and that the latter may disaffirm and recover the note from the possession of the former. 1817B 1172 (1916) ~ice~ FACTS SUBJECT: Bil of Exchange-Check MAKERS: Brick company PAYEE: Murray SUBSEQUENT INDORSEMENTS: Father of Murray sold to Thompson. 188 S.Quevedo Camille Umali CHAPTER 4: DEFENSES AND EQUITIES MURRAY V THOMPSON 136 Tenn. There was no actual fraud on the part of Murray in the transaction with Thompson. -The common-law rule is that the purchaser and indorsee of such a note is not a bona-fide holder as against an infant indorser. 1914. The law would not want to deprive the infant of the right to reinvest in himself the title to the instrument against a holder who had knowledge of the indorser’s infancy. LRA. Murray. It was payable on June 1. The proceeds were deposited to the account of Murray. his father. 118.

1. Furthermore. act. and that the note was delivered by Martinez to said Montalvo in payment of the gambling debt which Martinez owed Montalvo. for value received. inquired from the defendant about the nature of the note before accepting its indorsement. Mexican currency. act. he can not. and to act upon such belief. sold and transferred the said PN to Rodriguez before maturity. in any litigation arising out of such declaration. 3 .000 Mexican pesos Signed by Martinez. and was informed by him that the note was good and that he would pay the same at a discount. Sec. Defendant Martinez is ordered to pay to the plaintiff Rodriguez the sum of 4. he accepted it in good faith. -These facts sufficiently show that Rodriguez bought the note upon the statement of Martinez that the same had no legal defect and that he was thereby induced to buy the same by the personal act of Martinez. yet there are other grounds upon which this case can be decided. and no stamp had ever been attached thereto. be permitted to falsity it. by his own declaration. provides as follows: "Whenever a party has. and that defendant Martinez would not repudiate it for the reason that Martinez. as the court found. 1902. and tendered such stamp. plaintiff Rodriguez acquired the ownership of the note in question by virtue of its indorsement. went to Martinez and asked him in respect thereto. before having the note. Rodriguez received the same w/o notice of any conditions existing against the note. currency. to hold otherwise would be equivalent to permitting Martinez to go against his own acts to the prejudice of Rodriguez. since he was not given notice. In view of this. or omission intentionally and deliberately led another to believe a particular thing true. Without such assurance from Martinez we can hardly believe that Rodriguez would have bought the note. He did so without being aware of the fact that the note had an unlawful origin. After the trial Rodriguez offered to put the necessary stamp on the note. In view of the fact that the judgment of the court below contains no finding as to the name or nature of the game. 333 of Code of Civil Procedure. Martinez can not be relieved from the obligation of paying Rodriguez the amount of the note alleged to have been executed for an unlawful consideration.a. -From the facts set out in the judgment of the court below. -Montalvo. Rodriguez. payable to one Montalvo. Martinez deliberately and maliciously concealed it from Rodriguez.000 pesos.Quevedo Camille Umali RODRIGUEZ V MARTINEZ 5 Phil 67 (1906) ~rean~ FACTS SUBJECT: promissory note dated Oct. Such a holding would be contrary to the most rudimentary principles of justice and law. 17. It is thus inferred from the fact that he. SC applied A1277 of CC: the consideration of the contract must be presumed to be lawful and valid until the contrary is proved. and without considering as we have said these questions which we do not think necessary to discuss for the purposes of this decision. HELD: YES -SC did not discuss whether the game at which this debt was incurred is a prohibited game or not. or its equivalent in Phil. or omission. Therefore. had assured him before the purchase of the note that the same was good and that he would it at a discount. for 4. This note was presented to the court as evidence of that debt without the stamp required by law. of any conditions existing against the note. Rodriguez. with legal interest at 6 % p. believing the note was valid and absolutely good. applicable to this case. he having paid the value thereof to its former holder.NEGO . Par." Disposition Judgment of lower court is reversed. ISSUE WON defendant Martinez is liable to pay Rodriguez on the instrument. If such unlawful consideration did in fact exist.

NEGO . Disposition Judgment affirmed.J. “Everything is all right. But where the holder of a note has been willfully misled as to the genuineness of an indorsement thereon by one who purports to be the indorser and sustains damage or is prejudiced thereby. 89 Atl. 1016 (1914) ~yella~ FACTS SUBJECT: Promisory note MAKER: Charles Flynn PAYEE: Balene & Max INDORSEE: H. -Defendant at the trial denied his signature as indorser. Court denied defendant’s motion for nonsuit ISSUE WON defendant is stopped from alleging forgery HELD: YES -It is true that silence and acquiescence alone does not estop a defendant in a suit upon an alleged forged instrument from proving the forgery. to the plaintiff. he attended and examined them and said. the alleged indorser will be stopped from denying the validity of the signature. insisiting that it was a forgery.L. 457.L.Quevedo Camille Umali GLUCKMAN V DARLING (1914) 85 N.” The notes were then accepted on account of the purchase price of the property. When Balene & Max requested the defendant to be present at the transfer and questioned him about the notes. and the one in suit subsequently passed by indorsement. 4 . for a valuable consideration. Darling HOLDER FOR VALUE: Isaac Gluckman -Balene & Max were about to sell to Charles Flynn some real estate and were to take in part payment therefore notes made by Flynn and indorsed by defendant. where the plaintiff had not been prejudiced or damaged thereby.

the same as under the prior law. corroboration of Haley’s wife.Quevedo Camille Umali STRADER V HALEY 216 Minn. a party may be “precluded” by ratification. Park Recreation Parlor. to purchase supplies. -SC concluded that the framers of the NIL intended that under the act. *case had a discussion on WON “precluded” was equivalent to “estoppel” as some authors conclude. -Court concluded that plaintiff ratified all the unauthorized signatures in these cases. The dropping of such proviso did not indicate any intention of changing the meaning adopted from the English law. Strader claimed that Haley forged her name as drawer for 2 checks and as indorser in a total of 57 checks. Established rule was that an unauthorized signature not amounting to forgery could be so ratified. -TC said that there was no finding that plaintiff authorized Haley to sign her name on any check. the intent to fraud. -Plaintiff brought separate actions against Haley. which was her usual routine. that by reason of such ratification she is precluded from setting up the fact that her signatures were unauthorized in the actions against Haley. there was no forgery committed as an essential element. This was proven by: proceeds of the check were definitely identified and traced. Checks varied amounts. and return the change to her.” This proviso was not included in the NIL but a footnote was added that a forged signature may be ratified. 315. 1941. he thereby ratifies the act. TC also said that plaintiff received from Haley all the proceeds of the checks with knowledge that such proceeds came from the checks. 12 N. -in the instant case. (2d) 608 (1943) ~javi~ FACTS -Haley and his wife lived with plaintiff Strader. it is not equivalent and its meaning should not be so limited because 1)it is not the intention of the framers. was not proven. 2) it is opposed to the prior law which NIL adopted. Easlinger.NEGO . The English law contains a proviso “that nothing in this section shall affect the ratification of an unauthorized signature not amounting to a forgery. 1936 and June 14. -in the instant case. However the Court said that although “precluded” denotes the consequence of an estoppel. TC found that plaintiff had ratified Haley’s actions and conduct in cashing the checks. 69 checks were negotiated by Haley. Liberty State Bank were those who cashed the checks. -Defense claimed that the checks were indorsed by plaintiff herself. Disposition affirmed 5 .23 of the NIL includes ratification (in this case receiving proceeds of the checks) -“precluded” includes ratification. *WON plaintiff ratified acts of Haley: YES -where the principal accepts and retains the benefits of an unauthorized act of an agent with full knowledge of all the facts. the fact that Strader did not complain to her attorneys that she did not receive any checks. -Plaintiff claimed she never made such indorsements or signed as drawer.W. Plaintiff appealed ISSUE WON plaintiff is liable for Haley’s acts by ratification HELD: YES *Court first determined WON “precluded” in sec. that she delivered them to Haley with instructions to cash them. parties who were alleged to have cashed checks for Haley and Liberty State Bank. Rule is that an unauthorized signature on a note. NIL is based largely on the English Bills of Exchange Act. the evidence sustains the finding that plaintiff received the proceeds of the checks in cash and with full knowledge of all the facts. check or other instrument under circumstances not constituting the crime of forgery may be ratified. Luz. Between July 11. *Court then determined WON a forgery may be ratified -By a forgery is meant an unauthorized signature on an instyument or a material alteration thereof in violation of a criminal statute.

reversed as to BPI. On this contract was forged the name of Baldwin. -The signatures to the checks being forged. “By (Sgd. These. -After receipt of the money. first and foremost. -The bank in the case at bar was neither a gratuitous bailee (as contended by BPI) nor an intermeddler bank (as contended by plaintiff). YES. (This practice of withdrawing money for shipment was frequent for plaintiff but never so large an amount and under the sole supervision of Dolores. Before Cooper left in 1926. It also contained a request for a certified check from CBC upon receipt of the money. BPI received a letter. WON BPI is liable HELD *SC. and CBC was not bound to inspect and verify all endorsements of the check. 23. the crime was discovered. creditor and debtor. it must be considered as making the payment out of its own funds. this duty was therefore upon BPI. It had a right to rely upon BPI’s endorsement when it gave the latter bank credit for its own cahier’s check 2. -TC absolved both defendants. directing that P200K in bills of various denominations be packed for shipment and delivery the next day. conspiring w/ Alfredo Dolores. -BPI credited plaintiff’s account for P201K and passed the cashier’s check through the clearing house. and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged. plaintiff sued BPI and CBC.) -Dolores then delivered the money. The proximate cause of the loss is BPI’s negligence. CBC sent an exchange contract to plaintiff offering P201K (current rate). -A manager’s check on CBC for P201K payable to plaintiff was receipted for by Dolores. to credit account of (plaintiff). was handled by Alfred Cooper. In connection with the cahier’s check. its agent (under GPA) w/ authority of substitution. Dolores witnessed the counting and packing of the money then he gave a check. 1. A bank that cashes a check must know to whom it pays. a bank where plaintiff has an account. The principal employee in the Manila office is Joseph Wilson who also has a GPA but w/out substitution. It is an elementary principle both of banking and the NIL that a bank is bound to know the signatures of its customers. (Manila) -The business in the Phils. for P200K. purporting to be signed by Baldwin. Their relation is that of depositor and banker. purporting to be signed by Baldwin. a messenger-clerk in Plaintiff’s Manila office. he gave a GPA to Newland Baldwin and at the same time revoked Wilson’s GPA relative to dealing with BPI. to Wilson where he received his P10K share. WON CBC is liable 2.) NEWLAND BALDWIN For Agent” This endorsement was spurious. -The bank paid out its money because it relied upon the genuineness of the purported signatures of Baldwin. even today the bank represents that it has a belief that they are genuine signatures. ISSUES 1. -After a year.NEGO . in plaintiff’s office. they never questioned at the time its employees should have used care. under Sec. 6 . Shortly thereafter. and upon BPI refusing to credit plaintiff with the amount of the 2 forged checks (P200K+P1). declared that the falsity of Baldwin’s signatures is beyond reasonable doubt. again purporting to be signed by Baldwin. Wilson. W/c check was deposited to BPI by the following indorsement: “For deposit only with BPI.Quevedo Camille Umali SAN CARLOS MINING CO. they are not a charge against plaintiff nor are the checks of any value to the defendant. CHINABANK CORP (1933) [place citation here] ~brian b~ FACTS -Plaintiff corporation is organized under Hawaiian law and is authorized to engage business in the Phils. He was also charged P1 for the service wherein he also came up w/ another check for P1. V BPI. LTD. and if it pays a forged check. The next day. (CBC). where it was paid by CBC. sent a cablegram to the company in Hawaii requesting a telegraphic transfer of $100K to China Banking Corp. Disposition Judgment modified –affirmed as to CBC. NO. In fact. -The same day. where plaintiff also has an account. even if some of them were also depositors in that bank. NIL.

forged the signature of Gozon. YES Ratio A bank is bound to know the signatures of its customers. and is based upon the presumed negligence of the drawee in failing to meet its obligation to know the signature of its correspondent. but payment in neglect of duty which the commercial law places upon him. pronounces it to be valid and pays it. Upon receipt of the statement of account from the bank.R. a depositor of the Caloocan Branch of PNB.Quevedo Camille Umali PHIL. and encashed it in the bank on the same day. Gancayco. it is not only a question of payment under mistake. 7 . 1988 ~mini~ FACTS -Francisco S. WON PNB was negligent in encashing the forged check without carefully examining the signature therein 2. 2. If the paper comes to the drawee in the regular course of business. -Santos took a check from Gozon’s checkbook. and if it pays a forged check. filled it up for the amount of P5T. WON Gozon is precluded from setting up the defense of forgery or want of authority (since it is his own negligent act of leaving the checkbook in Santos’ hands that is the proximate cause of the loss) The Lawphil Project -Arellano Law Foundation HELD 1. No. it must be considered as making the payment out of its own funds. went to the bank accompanied by his friend Ernesto Santos whom he left in the car while he transacted business in the bank. having the opportunity ascertaining its character. This rule is absolutely necessary to the circulation of drafts and checks. NAT’L BANK V QUIMPO G. Gozon could not have been expected to know that Santos would remove a check from his checkbook. Disposition Petition is DISMISSED for lack of merit. Defendant had trust in his classmate and friend. ISSUES 1. Bank then filed petition for review on certiorari before SC. -Santos was apprehended by the police and he admitted that he stole the check of Gozon. He had no reason to suspect that the latter would breach that trust. Gozon filed the complaint for recovery of the amount of P5T against the bank in the CFI Rizal. L-53194. and cannot ordinarily change the amount so paid to the account of the depositor whose name was forged. Gozon II. March 14. -CFI ruled in favor of Gozon. NO -The act of Gozon in leaving his checkbook in the car while he went out for a short while can not be considered negligence sufficient to excuse the defendant bank from its own negligence.NEGO . Gozon asked that the amount of P5T be returned to his account as his signature on the check was forged but the bank refused. and the result of his negligence must rest upon him. and he.

both these bills were actually fakes. It appeared from the bill that it was indorsed to Anthony Topham. -Neal had no reason to doubt the second bill after Price. then Hammon and Laroche and finally. Neal gave notice to Price. Edward Neal. which he had bona fide paid. It was paid upon Price’s order. Black’s Law Dictionary: “In the common-law practice. Even if there was no neglect on the part of Price. The other bill he actually accepts. -It was a considerable time after payment before Price found they were forged and the forger was already to be hanged. Probably so he could use it to prove his acquittal or for execution of his claim. without the least privity or suspicion of any forgery. there is no reason to throw off the loss from one innocent man to another innocent man. which gives an account of the proceedings at the trial of the action. as distinguished from the appellate court. received it. -Wanting to recover the amount he paid. HELD: NO. It was not Neal’s duty to do so. a formal statement. It was proven that Neal acted innocently and bona fide. On the day it was due. 1354 (1762) ~ricky~ FACTS -A bill for 40 pounds (L40) was purportedly drawn by Benjamin Sutton (drawer) against John Price (drawee) in favor of Rogers Ruding (payee). He made no objection at the time he paid them. ISSUE WON Price may recover from Neal the money he paid on the two bills. it was on his side. for a valuable consideration. It is a misfortune which happened without Neal’s fault or neglect. It appeared from this bill that it was indorsed by Ruding to Watson and Son. But the jury found a verdict for Price. paid the first.] 1 8 . to Watson and Son whose representative.” [So it appears that in common-law practice. Price sent his servant to Neal to pay the L40 and take up the bill.” before ha accepted or paid it. without any scruple or hesitation. Ratio Price cannot recover the money paid from Neal because the latter received it upon a bill of exchange indorsed to him for a fair and valuable consideration.” The term “nisi prius” means the court in which “the cause was tried to a jury. and he sends his servant to pay and take it up. indorsed on the nisi prius record. Price sued Neal. Reasoning Here was no fraud: no wrong.” The bill being accepted. Notice was given upon Price of a bill drawn upon him.Quevedo Camille Umali PRICE V NEAL 3 Burr. -A second bill for L40 was again purportedly drawn by Sutton (drawer) against Price (drawee) in favor of Ruding (payee). Whatever neglect there was. it was indorsed by Neal for a valuable consideration and left at Price’s bankers for payment. Neal also paid the whole value bona fide. This second bill was accepted by Price upon presentment by writing on it: “Accepted John Price. They were done by a certain Lee who was later hanged for the crime of forgery. without any suspicion of the forgeries and that he paid the whole value of those bills.NEGO . Disposition Postea1 delivered to defendant. the victor will be entitled to a formal statement of the proceedings. -Unfortunately for Price. It was incumbent upon Price (drawee) to be satisfied “that the bill drawn upon him was the drawer’s hand.

Quevedo Camille Umali FIRST NAT’L BANK OF PORTLAND V U. all of whom deposited the checks in their accounts in the United States National Bank. and it is subsequently discovered that the signature of the drawer was forged. 9 . and it is not claimed that any of the 18 merchants knew or had any reason to suspect the checks were forgeries. NAT’L BANK OF PORTLAND 100 Ore. -Defendant bank collected from drawee/plaintiff bank. Disposition Judgment affirmed. but it cannot be said that the failure to compare the signatures was. the drawee cannot recover payment made to the holder. and (2) even if not negligent.NEGO . -Plaintiff bank wants to recover from defendant bank on the theory that (1) the latter was negligent in not detecting the forgery (apparently. and the drawee pays the instrument. drawer also had a checking account in defendant bank. -The fact that the defendant had in its files the genuine signature of a drawer might. 14 ALR 470 (1921) ~joey~ FACTS SUBJECT: 18 forged checks DRAWER: Willamette Iron & Steel Works DRAWEE: First National Bank of Portland PAYEES: Rose and Shea. ISSUE WON defendant bank is liable to plaintiff bank HELD: NO -GEN RULE: Where a holder for value in due course presents to the drawee a bill of exchange to which the name of the drawer has been forged. -EXCEPTIONS: This defense is not available to a holder who (1) is guilty of bad faith. oblige the defendant to refund. 196 Pac 547. so they should have been aware of the required signatures). -Was the defendant negligent? NO. -The checks were negotiated by the two to various merchants.S. -Forgery was discovered and drawee was immediately notified. secretary-treasurer. negligence on the part of the defendant. as a matter of law. the holder and drawee alike ignorant that the signature of the ostensibly drawer was forged. There was nothing upon the face of any of the checks to excite suspicion. or (2) has been negligent. followed by actual payment. 264. the indorsement of the checks and presentment for payment. president of Steel Works. and forge therein the signature of Insley. separately INDORSEES: various merchants United States National Bank of Portland -Rose and Shea confederated to obtain 18 blank checks bearing the lithographed signature of Ball. if there are other circumstances tending to show negligence be considered in determining whether the defendant was negligent.

63 PHIL 711. nothing w/c prohibits presentation of checks for acceptance before they are paid. and the bank cannot do anything but pay. -There is however. bank can fulfill its duty to depositor only by paying the amount demanded. The bank accepts if it chooses. -Motor Servic refused to reimburse. -Checks were indorsed for deposit by Motor Svc at the National City Bank of New York and Motor Svc was credited w/ the amounts.. The holder has no right to demand from bank anything but payment. Motor Svc believing that the signatures of Klar (Manager and Treasurer of Pangasinan Transport) were genuine. It demanded from Motor Svc the reimbursement of amounts for w/c it credited the National City Bank and for w/c the National City Bank credited Motor Svc. -The appellant in purchasing the papers from unknown person w/o making inquiry. NAT’L BANK V NAT’L CITY BANK OF NY and MOTOR SERVICE CO. certification is equivalent to an acceptance. unless his mistake has placed an innocent holder of paper in a worse position than he could have been in if the discovery of the forgery had been made on presentation. there was payment but no acceptance nor certification. he must be able to show that the whole responsibility of determining validity of the signature was upon drawee. -To entitle the holder of forged check to retain the money obtained. INC. -The purpose of certification is to import strength to the paper by obtaining acknowledgment from the certifying bank that the drawer has sufficient funds.NEGO . ISSUE WON PNB has right to recover from National City Bank HELD: YES -Acceptance is unnecessary in so far as bills of exchange payable on demand are concerned (e.. against PNB and in favor of Int’l Auto Repair Shop. -Checks were cleared and PNB credited the National City Bank of New York for the amounts. -In this case. Where a check is certified by the bank on w/c it is drawn. RECTO.Quevedo Camille Umali PHIL. -Said checks were indorsed by unknown person at the back. that the payee is an existing entity and the indorsements are regular. -The drawee of a check who is deceived by forgery of drawer’s signature may recover payment. Pangasinan Transport refused to have proceeds deducted from their deposit. acted negligently and contributed to the appellee’s constructive negligence in failing to detect the forgery. -A check being payable immediately and on demand. 10 . checks). purporting to have been issued by Pangasinan Transport Co. -PNB found out that the purported signatures of Klar were forged. believing that the signatures of the drawer were genuine.g. 1936 ~chriscaps~ FACTS -Unknown person negotiated w/ Motor Svc the checks in payment for tires purchased fr Motor Svc.

The irregularity of the warrants was apparent on the face thereof from the Treasury’s viewpoint yet the banks were not informed of any of the irregularity in them until after said warrants were cleared and honored.) ISSUE WON said banks are liable HELD: No. -Central Bank then referred the matter to BPI for appropriate action but the latter opposed the return of the warrants or to have their value charged against its account and requested. (Note: there is no mention of the NIL here because the 28 warrants were not negotiable. whose signature was forged. [Consolidation] -By agreement of the parties.Quevedo Camille Umali REPUBLIC V EQUITABLE BANKING CORP and REPUBLIC OF THE PHIL V. This it failed to do in these two cases.” wherein items that should be returned for whatever reason should be done so within 24 hours. -The Corporacion accommodated Carranza’s request since the latter was a trusted former employee but subject to certain conditions: a) that the warrants be deposited with BPI. said cases were jointly heard. -BPI then credited the proceeds to the Corporacion’s account. Only then did the Treasury give notice of the forgeries. the loss of amounts was imputable to the acts and omissions of the Treasury so the banks should not and cannot be penalized. citing PNB v Nat’l City Bank of NY. “Where a loss. 11 . induced the banks to credit the amounts to the respective depositors. -The Treasurer notified Equitable that said warrants were defective and demanded reimbursement of said amounts. which must be borne by one of two parties alike. on presentation to it of a forged check drawn on another bank. First Nat’l Bank: (restated lang ‘to ha!) Where a defendant bank. -The Treasurer returned 3 of the warrants to the Central Bank on the ground that those were forged and then demanded that the value of said warrants be charged against BPI’s account with the Clearing Office and credited back to the demand deposit of the Treasury. this.NEGO .” (C. (Kasi. said bank cannot be held liable for amount so paid. BPI 10 SCRA 8. [Equitable Case] -4 warrants were deposited with Equitable by its depositors Robert Wong.BPI filed a complaint against the Corporacion. can be traced to the neglect or fault of either. -As was stated.S. b) that the actual payment of the value of the warrants would be made only after the same had been duly accepted and cleared by the Treasurer and the proceeds thereof duly credited to the BPI account of the Corporacion. innocent of forgery. through whose means it has succeeded. Concepcion. Campos posed the question that had the said warrants been negotiable.” -“Generally. -Equitable cleared said warrants through the Clearing Office and then collected the corresponding amounts from the Treasurer. all 28 warrants were cleared and paid by the Treasury. instead. -Treasury should bear the loss. which was then withdrawn by the Corporacion. paid part of amount to presenter. The Treasury was the negligent one here since there was a “24 –hour clearing rule. would the Court’s ruling be different?) -Negligence in clearing: The Auditor of the Treasury. -Eventually.J. credited those to the accounts of the depositors. Lu Chiu Kau and Chung Ching . all warrants were returned by the Treasury to the Central Bank for the same reason and with the same demand. with no notice of forgery given. to the CB to return said warrants to the Treasurer. where a drawee bank otherwise would have a right of recovery against a collecting or indorsing bank for its payment of a forged check. -Said conditions were met and deposited with BPI who accepted the warrants “subject to collection only” and with each of them (warrants) bearing the indorsement of the respective payee and that of the Corporacion. and thereafter. exceeded his authority to approve since each of the warrants involved were for over 5k pesos. TF. Equitable filed a similar complaint for whatever reimbursements it and BPI may be sentenced to give the Gov’t. Jan 30. Disposition Decision appealed from is Affirmed. was paid by the Treasurer. even if innocent of any intentional fraud. its action will be barred if it is guilty of an unreasonable delay in discovering the forgery and in giving notice thereof. 769-770) -First State Bank & Trust v. then. which the latter refused. 1964 ~’del~ FACTS [BPI case] -Jacinto Carranza asked the Corporacion de los Padres Dominicos to cash 24 treasury warrants from which encashment his wife expected to earn a sort of commission. it is reasonable that it would be borne by him. drawee having had the check cleared through the clearing house. -BPI presented the warrants for payment to the drawee (the Government) through the Clearing Office and upon clearing.

Sept23. on the check. The First National’s cashier’s check was marked paid through the clearing house at 8:45 a. placed its clearing house indorsement. The holder and the drawee are equally without fault. The deposit. the First National Bank of Portland on Sept22. The check reached the drawee. The plaintiff recovered judgment in the trial court against the Nobles. The teller in the First National. the First National Bank discovered its mistake and before 12 o’clock the First National retendered the Kelleck check as a dishonored item but the United States National refused to receive it and to return the proceeds of the cashier’s check. -The position of the defendants in the case at bar is in this respect stronger than that of the one who has received payment of a forged check. It is as follows: -The payee is entitled to retain the money which he has received as a bona fide purchaser. a broker DRAWEE: First National Bank of Portland Oregon PAYEE: Lilian S. Noble SUBSEQUENT INDORSEMENTS: Mrs. -The court concluded that the asserted right of plaintiff to restitution must be considered exactly as if the Kelleck check and had been paid over the counter in cash. -Sept25. The Nobles appealed. -The forgery cases are said to rest. 573. 168 P.Quevedo Camille Umali FIRST NAT’L BANK OF PORTLAND V NOBLE (1946) 179 Ore.. to the United States National though the courts finds that the cashier’s check was received by the First National on Sept24 and marked paid on that date though the clearing house transaction took place on the next morning. by letter dated Sept23. Here the equities are not equal. had been placed on the check by another teller of the First National. The check was then returned through the clearing house to the forwarding bank. $10. payable to order of the United States National in the amount of the Kelleck check. The account of the drawer.NEGO . But no inquiry was made. as of Sept22. The United States National credited the First National’s cashier’s check to the account of the Nobles. had the same duly signed by an assistant cashier of the drawee and delivered the same to the messenger from the United States National. and the holder has the money. i. -The defendants Noble are not chargeable with any neglect or inequitable conduct. for a symbol authorizing payment. The representative of the plaintiff was clearly negligent. the US National. The credit to the US National Bank was canceled by the First National.m. Lee through the drawer DRAWER: Kelleck. The First National Bank brought an action of assumpsit for money had and received against Lilian Noble and John Noble and the United States National Bank to recover the amount of the cashier’s check. ISSUE WON the trial court erred in discharging the US National from liability HELD: NO -Rule 33 of the Restatement on Restitution must control the decision of this case. shortly before 3pm. -Sept24. Sept25. The typical cases are those where an employee of a bank pays the holder of a check in the mistaken belief that the drawer has sufficient funds on deposit to meet it or in forgetfulness of the fact that the drawer has directed that payment should not be made. He acted in reliance on a symbol which he had never before seen the meaning of which he had no reason to know. upon the maxim that where the equities are equal the legal title must prevail.e. US National Bank by messenger presented the check over the counter of the First National. 26. Kelleck. informed Mrs. Neither they nor their collecting agent knew or were entitled to know the state of the Kelleck account. in part at least. at 11 am. Noble indorsed the check in blank and deposited it in the United States National Bank of Portland. A moment’s inquiry would have informed him fully concerning the meaning of the symbol and the state of Kelleck’s account. That maxim appears applicable where a drawee bank pays a check so skillfully forged as to defy detection. Freeport Bank of Freeport. On discovery of this fact a teller in the First National Bank placed a small symbol on the check which indicated that the check was to be rejected for want of sufficient funds. mistook the rejection symbol which on Sept22. (2d) 354 (1946) ~jaja~ FACTS SUBJECT: check drawn as a refund of the payment made by John and Lilian Noble for the property purchased and subsequently reconveyed to T.. The US National. with the advice that it was being dishonored for insufficient funds in the drawer’s account. on the same day. 12 .D. Noble of the dishonor of the Kelleck check and that it had been charged back to the Noble’s account. The US National Bank filed its bill of interpleader and tendered the money into court. to whom the check was presented the second time. on Sept21. -The US National Bank. and the fact that the Kellect check was NSF on Sept22 did not render it unconscionable to present it again on Sept24. then had but $200 to his credit.50. Acting on this mistaken assumption he prepared a cashier’s check dated Sept24. was entered as credits in the Noble’s savings account and checking account.

LIBERTY TRUST CO V HAGGERTY (1921) [place citation here] ~ina~ FACTS -Haggerty. it was bound to know the state of its account with Haggerty. The defendants Noble may have their costs and disbursements from the plaintiff First National Bank.573. ISSUES WON Liberty can recover what it paid Mayhew HELD: NO. -Liberty wants to recover the money it paid to Mayhew. Haggerty and bookkeeper succeeded in obtaining overdrafts of about $53k of the bank's funds.50 paid into the registry of the court xxx The decree is affirmed as to the United States National Bank.Quevedo Camille Umali Disposition The decree in favor of the First National Bank is reversed. is a holder for value as against the former owner. 13 . -Mayhew was one of the claimants. in payment of a pre-existing debt. and the bank can't recover from the payee of the check the amount so paid. He loaned Haggerty some money with 20-40% interest. on the other hand. The bank paid a total of $19k to Mayhew during the time the books were being magicked. a manloloko. Haggerty paid him with checks drawn on Liberty. when a bank official accidentally discovered the falsification. They were successful for about 5 months. It is ordered that the defendants Noble recover the sum $10. -It's a rule that a person receiving stolen money innocently in due course of business. This is under the general rule that payment of a check by a bank upon which it is drawn. he did not have a right to exact payment from Liberty because there was no contract between them. the bank always has the means of knowing the state of the depositor's account by an examination of its books. to permit the bank to repudiate the payment would destroy the certainty that must pertain to commercial transactions and give way to uncertainty.NEGO . -Haggerty was arrested. Having exercised its option to pay or not to pay by honoring the checks. delay and annoyance. When the bank decided to pay. He induced a bookkeeper of the bank to manipulate the bank's books to make it appear that he had credit in the bank so that the checks he drew on the bank would be honored. had a checking account with Liberty Trust Co. Liberty. is a finality. had the right to determine WON to pay him. Liberty can't recover the money back from the payee. under the mistaken belief that the maker of the check has sufficient funds to his credit to pay the check. and therefore the payment is not a mistake within the meaning of the general rule which permits the recovery of money paid under a mistake of fact. His total realized assets was $9500 and the claims filed with the trustee totaled more than $150k. As such. Mayhew was a bona fide holder for value. -The reasons for this rule are: 1. He was also declared bankrupt and a trusty was appointed. and 3. there's no privity between the payee and the bank. Mayhew was not aware of the fact that Haggerty's account was being falsified. 2.

Its remedy is against Maasim. HSBC paid PNB and then charged the check to the account of Great Eastern. -HSBC. as an endorser. ISSUES WON Great Eastern can recover HELD YES. 14 . the payee. received its bank statement. PNB had no license or authority to pay the money to Maasim. Great Eastern found out that Melicor never got paid. the forgery was that of Melicor. when Great Eastern. It was its legal duty to know that Melicor's endorsement was genuine before cashing the check. PNB endorsed the check to HSBC. He then endorsed and presented it to PNB where the amount was placed to his credit. drew a check for 2k on HSBC payable to the order of Melicor. HSBC. V HSBC (1922) 43 Phil 678 (1922). it should go after Maasim. HSBC has no defense to this action. sent Great Eastern a bank statement which showed that the check was charged to its account. -Great Eastern sued HSBC to recover the 2k (so it could pay Melicor).NEGO . -HSBC had no legal right to pay it out to anyone except Great Eastern or its order. Failure to do so would release the bank. Great Eastern then made a demand on HSBC that Great Eastern should be given credit for the forged check but HSBC refused. Therefore. Great Eastern did not object. -4 months later. -After paying Maasim. -Great Eastern can recover from HSBC. as expected in the ordinary course of business. Great Eastern ordered HSBC to pay the 2k to Melicor but the money was paid to Maasim. In such a case. This is not a case where the plaintiff's own signature was forged to one of its checks. Johns ~chrislao~ FACTS -Great Eastern. -PNB cashed the check upon a forged signature. the plaintiff would have known the forgery and would therefore have the duty to promptly notify the bank. As for PNB. the drawer. -Here. HSBC would not have paid it. prays that should judgment be rendered against it.Quevedo Camille Umali GREAT EASTERN LIFE INS. HSBC can recover from PNB. it had the right to assume that Melicor had personally endorsed the check because otherwise. -Maasim fraudulently obtained possession of said check and forged Melicor's signature. it should have like judgment against PNB. on the other hand. an insurance company.

the indorsements on the checks had been forged -In legal contemplation. 1975 ~apple~ FACTS -10 checks with a total face value of P8. had a balance of only P128. should be liable to the latter for reimbursement. it is wholly inoperative. 1959. the petitioner negligently accepted them for cash. for. Inc... for its part.65. Jai-Alai Corp drew against its current account with BPI a check for P135.” -After Ramirez had resigned from the Inter-Island Gas and after the checks had been submitted to interbank clearing. as collecting bank.Quevedo Camille Umali JAI-ALAI CORP. and no right to retain the instrument.. which may only be deposited. having indorsed the checks to BPI in accordance with the rules and practices of commercial banks. which was dismissed. -When the petitioner deposited the checks with the respondent. debited Jai-Alai Corp's current account -On October 8. in current funds or solvent credits. therefore. August 6. the nature of the relationship created at that stage was one of agency--the bank was to collect from the drawees of the checks the corresponding proceeds. -Jai-Alai Corp filed a complaint with CFI. -Having received the checks merely for collection and deposit. Philippine National Bank. can be acquired through or under such signature. -Inter-Island Gas advised Jai-Alai Corp. a sales agent of the Inter-Island Gas and a regular bettor at jai-alai games -Upon deposit to BPI. were ineffective. OF THE PHIL." were forgeries. but not encashed. yet.030. shall have been actually received by the Bank. BPI cannot he expected to know or ascertain the genuineness of all prior indorsements on the said checks. the relationship of creditor and debtor between the petitioner and the respondent had not been validly effected. or to enforce payment thereof against any party thereto. BPI. CA affirmed dismissal ISSUE WON BPI had the right to debit the petitioner's current account in the amount corresponding to the total value of the checks with the forged indorsements HELD: YES." -BPI. CASTRO.NEGO . and." -Also. Yet. The respondent acted within legal bounds when it debited the petitioner's account.. the drawers and the drawee-banks of the said checks about the forgeries -Drawers of the checks demanded reimbursement to their respective accounts from the drawee-banks -Drawee-banks demanded from BPI. Indeed. -Section 23 of the Negotiable Instruments Law provides: "When a signature is forged or made without the authority of the person whose signature it purports to be. and the latter reserves to itself the right to charge back the item to the account of its depositor. regardless of whether or not the item itself can be returned. JaiAlai. the payments made by the drawee-banks to the BPI. as found by the court a quo and by the appellate court. or to give a discharge therefor. It is true that the respondent had already collected the proceeds of the checks when it debited the petitioner's account. at any time before that event. Ramirez. the checks were temporarily credited to Jai-Alai Corporation's account with the condition that “any credit allowed. it might be argued that the relationship between the parties had become that of creditor and debtor as to preclude the respondent from using the petitioner's funds to make payments not authorized by the latter. Jai-Alai was grossly recreant in accepting the checks in question from Ramirez. V BPI (1975) 66 SCRA 29. the petitioner cashed these checks to a mere individual who was admittedly a habitue at its jai-alai games without making any inquiry as to his authority to exchange checks belonging to the payee-corporation. the return of the amounts they had paid on account thereof -BPI.58 with the forged indorsements. as a collecting bank which indorsed the checks to the drawee-banks for clearing. 15 . -The check was dishonored by BPI as its records showed that the current account of the petitioner. so that following the rule in Gullas vs.is provisional only. unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.000 payable to the order of the Mariano Olondriz y Cia in payment of certain shares of stock.58 were deposited by Jai-Alai Corporation in its current account with BPI -All the checks (all payable to Inter-Island Gas or order) were acquired by the Jai-Alai Corporation from one Antonio J. is deemed to have given the warranty prescribed in Section 66 of the Negotiable Instruments Law that every single one of those checks "is genuine and in all respects what it purports to be. as well as the rubber stamp impression thereon reading "Inter-Island Gas Service.. after netting out the value of the checks P8.257. -It must be noted further that three of the checks in question are crossed checks. such being the case. the checks not having been properly and legitimately converted into cash. until such time as the proceeds thereof. Inc. It could not have escaped it's attention that the payee of all the checks was a corporation — the Inter-Island Gas Service. Inter-Island Gas discovered that all the indorsements made on the checks purportedly by its cashiers. on account of the said checks.030.

Thus. FNCB recredited the amount to San Miguel‟s account. 1991 Facts: San Miguel Corporation issued a dividend check for P240 in favor of J.Quevedo Camille Umali -Under Section 67 of the Negotiable Instruments Law. Republic Bank endorsed the check to First National City Bank (FNCB). warranty should not be held liable for the "Where a person places his indorsement on an resulting loss. therefore.” or lack of indorsements Relying on the endorsement." and under Section 66 of something is received when there is no right to the same statute a general indorser warrants that demand it and it was unduly delivered through the instrument "is genuine and in all respects mistake. instrument negotiable by delivery he incurs all the -Also. genuineness of all prior indorsements thereon. by stamping on the back of the check “all prior and / guaranteed. Delgado altered the amount of the check to P9. FNCB paid the amount to Republic Bank. as a generalrule. San Miguel informed FNCB of the material alteration of the amount.when the drawee bank fails to return a forged or altered check to the collecting bank withinthe 24-hour clearing period (as provided by Section 4c of Central Bank Circular 9. no valid petitioner indorsed the said checks when it payment of money made by the drawee-banks to deposited them with the respondent.NEGO . The drawee bank. a stockholder. the present action. 16 ." Considering that the was. the collecting bank or last indorser. Hence. the obligation to return it arises. Republic Bank refused. Later on. under article 2154 of the New Civil Code "If liability of an indorser. the collecting bank is absolved from liability. asamended).240. The check was indorsed and deposited by Delgado with Republic Bank. Held: When an indorsement is forged. the the respondent on account of the questioned petitioner as an indorser guaranteed the checks. in contemplation of law. Issue: Who shall bear the loss resulting from the altered check. shouldbear the loss for the payment of the altered check for its failure to detect and warn RepublicBank of the fraudulent character of the check within the 24-hour clearing house rule. FNCB. The respondent which relied upon the petitioner's REPUBLIC BANK VS." There what it purports to be. the drawee bank. Roberto Delgado. and demanded refund from Republic Bank. bears the loss. CA. But the unqualified indorsement of the collecting bank on the checkshould be read together with the 24-hour regulation on clearing house operation.

On 19 February 1981. in favor of PNB and against Associated Bank ordering the latter to reimburse to the former the amount of P203. the sum of P203." Jesus David.300.00 with legal interests thereon from 20 March 1981 until fully paid.000. In January 1981. Romero (J): 3 concur Facts: The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch where the provincial funds are deposited. It was then discovered that the hospital did not receive several allotment checks drawn by the Province. PNB. The allotment checks for said government hospital are drawn to the order of "Concepcion Emergency Hospital. After trial on the merits. the Provincial Treasurer requested the manager of the PNB to return all of its cleared checks which were issued from 1977 to 1980 in order to verify the regularity of their encashment. the Provincial Treasurer learned that 30 checks amounting to P203.00 with legal interest thereon from 20 March 1981 until fully paid. Pangilinan sought to encash the first check with Associated Bank. COURT OF APPEALS [GR 107612] Second Division. COURT OF APPEALS [GR 107382. the manager denied having given Pangilinan preferential treatment on this account.NEGO . A portion of the funds of the province is allocated to the Concepcion Emergency Hospital. as well as for 28 other checks of various amounts and on various dates. He did not find as irregular the fact that the checks were not payable to Pangilinan but to the Concepcion Emergency Hospital. He claimed to be assisting or helping the hospital follow up the release of the checks and had official receipts. After forging the signature of Dr. After the checks were examined.300. the same was ordered dismissed for lack of cause of action as against Adena Canlas and lack of jurisdiction over the person of Fausto Pangilinan as against the latter. The court also dismissed the counterclaims on the complaint. Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank. PNB and Associated Bank appealed to the Court of Appeals. the manager of Associated Bank refused and suggested that Pangilinan deposit the check in his personal savings account with the same bank. Adena Canlas who was chief of the payee hospital. Hence the 17 . the Province brought suit against PNB which. the Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts debited from the current account of the Province. The appellate court affirmed the trial court's decision in toto on 30 September 1992. with the Associated Bank acting as collecting bank. the PNB manager demanded reimbursement from the Associated Bank on 15 May 1981. collected the checks from the office of the Provincial Treasurer.Quevedo Camille Umali ASSOCIATED BANK VS. While he admitted that his wife and Pangilinan's wife are first cousins. impleaded Associated Bank as third party defendant. It turned out that Fausto Pangilinan. The last check negotiated by Pangilinan was for P8. Tarlac. However. in the amount of P5. who was the administrative officer and cashier of payee hospital until his retirement on 28 February 1978.300. the manager of Associated Bank. thirdparty complaint and fourth-party complaint. As both banks resisted payment." The checks are released by the Office of the Provincial Treasurer and received for the hospital by its administrative officer and cashier. for lack of merit. ALSO PHILIPPINE NATIONAL BANK VS. The latter then filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan. Tarlac" or "The Chief. ordering the latter to pay to the former. the books of account of the Provincial Treasurer were post-audited by the Provincial Auditor.000. All the checks bore the stamp of Associated Bank which reads "All prior endorsements guaranteed Associated Bank. 31 JANUARY 1996]. in turn.00 and dated 10 February 1981. Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan. Pangilinan followed the same procedure for the second check. Concepcion. In turn. On 26 February 1981. Concepcion. Concepcion Emergency Hospital. on the fourth-party complaint. on the thirdparty complaint. on the basic complaint.00 and dated 20 April 1978. the lower court rendered its decision on 21 March 1988. alleged that Pangilinan made it appear that the checks were paid to him for certain projects with the hospital. in favor of the Province and against PNB.00 were encashed by one Fausto Pangilinan.

The bank is also in a better position to detect forgery. After nearly three years. Held: The present case concerns checks payable to the order of Concepcion Emergency Hospital or its Chief. such as the checks in the case." He cannot interpose the defense that signatures prior to him are forged. An indorser of an order instrument warrants "that the instrument is genuine and in all respects what it purports to be. the signature of its rightful holder (here. The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter. therefore. thereby depriving said presentor of the right to recover from the forger. If the drawee bank delays in informing the presentor of the forgery. was no longer connected with the hospital.Quevedo Camille Umali consolidated petitions which seek a reversal of the appellate court's decision. Moreover. Herein. the former is deemed negligent and can no longer recover from the presentor. PNB. share the burden of loss from the checksbearing a forged indorsement. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. The bank on which a check is drawn. However. Hence. that he has a good title to it. the checks were order instruments. Fausto Pangilinan. having already retired from government service. If PNB negligently delayed in informing Associated Bank of the forgery. a drawee bank has the duty to promptly inform the presentor of the forgery upon discovery. some of the aid allotment checks were released to Pangilinan andthe others to Elizabeth Juco. his address and history because he is a client. thus depriving the latter of the opportunity to recover from the forger. liable. hold the forger. The infirmity in the questioned checks lies in the payee's (Concepcion Emergency Hospital) indorsements which are forgeries. With the exception of the first check (dated 17 January 1978). then the drawee bank PNB can charge its account. Issue: Whether PNB was at fault and should solely bear the loss because it cleared and paid the forged checks. all the checks were issued and released afterPangilinan's retirement on 28 February 1978. When the holder's indorsement is forged. all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. the Treasurer's office was still releasing the checks to the retired cashier. In addition. The bank knows him. Checks having forged indorsements should be differentiated from forged checks or checks bearing the forged signature of the drawer. the new cashier.NEGO . Associated Bank can. that all prior parties had capacity to contract. is under strict liability to pay the check to the order of the payee. the loss should be properly apportioned between them. the Province of Tarlac. the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. They were properly issued and bear the genuine signatures of the drawer. if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss. If both drawee bank-PNB and drawer-Province of Tarlac were negligent. A collecting bank where a check is deposited andwhich indorses the check upon presentment with the drawee bank. it forfeits its right to reimbursement and will be made to bear the loss. the drawee bank. known as the drawee bank. Where the instrument is payable to order at the time of the forgery. There is also evidence indicating that the provincialemployees were aware of Pangilinan's retirement and consequent dissociation from the 18 .However. the payee hospital) is essential to transfer title to the same instrument. The Court finds that the Province of Tarlac was equally negligent and should. and that the instrument is at the time of his indorsement valid and subsisting. At the time of their indorsement. is such an indorser. The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness of any indorsement. The fact that there were now two persons collecting the checks for the hospital is an unmistakable sign of an irregularity which should have alerted employees in the Treasurer's office of the fraud being committed. cannot debitthe current account of the Province of Tarlac because it paid checks which bore forged indorsements. in turn. the drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. The drawee bank's duty is but to verify the genuineness of the drawer's signature and not of the indorsement because the drawer is its client. So even if the indorsement on the check deposited by the banks' client is forged. the collecting bank is made liable because it is privy to the depositor who negotiated the check. It has taken a risk on his deposit. fraud or irregularity in the indorsement.

19 . Adena Canlas. Hence.00.300.Quevedo Camille Umali hospital.300. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan. including that of the chief of the payee hospital. Associated Bank.300. The collecting bank.00 from PNB. having guaranteed the genuineness of all prior indorsements. the Province of Tarlac can only recover 50% of P203. the Province contributed to the loss amounting to P203. due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (FaustoPangilinan). in allowing the retired hospital cashier to receive the checks for the payee hospital for a periodclose to three years and in not properly ascertaining why the retired hospital cashier was collecting checks forthe payee hospital in addition to the hospital's real cashier. Dr.00 and shall be liable to the PNB for 50% thereof. shall be liable to PNB for 50% of P203. Associated Bank was also remiss in its duty to ascertain the genuineness of the payee's indorsement. In effect.NEGO .

then by one Budd. he will not be allowed afterward to dispute the genuineness of the drawer's signature. it is liable as principal in an action. before notice of the forgery. The ground on which the plaintiffs sought to recover back the money was that the endorsement purporting to be that of Bentley was a forgery. -To a note or bill payable to order. -If one accepts a draft in the hands of a bona fide holder. by the drawee. and payment operates. 1 Hill 287 (1841) ~rach~ FACTS -This is a case to recover money paid on a draft. they had obtained money of the plaintiffs on an instrument to which they had no title. and put in circulation. -The draft was drawn on the plaintiffs (Canal Bank) by the Montgomery County Bank. in this respect. -Where a draft had been fraudulently indorsed with the name of an agent. payable to the order of E. 20 . afterward by the Bank of New-York. and it is afterwards discovered that the indorsement was a forgery. It purported to have been endorsed successively by Bentley. -Where a bank collects a draft without disclosing to the drawee that it is merely collecting as agent. bona fide. and were therefore bound to refund. not even a bona fide holder. plaintiffs asked the defendants to have the money refunded. (2) That a uniform custom of the banks of this state is to receive and collect drafts in the manner this was done. Bentley. without disclosing their agency. the indorsee of the principal. by the principal of the pretended agent. the same as an acceptance. they already received it and transmitted it to their principal. to whom the plaintiffs paid it. Disposition New trial denied.Quevedo Camille Umali CANAL BANK V BANK OF ALBANY Supreme Court of New York. which fact was proved by Bentley and others on the trial. though notice of the forgery was not given till more than two months after they had received the money. and lastly by the defendants (Bank of Albany). the circuit judge overruled the defendant’s offer to prove the ff: (1) That the defendants received the draft from the Bank of New York to collect. discovering the forgery two months after might recover the money advanced to the principal. notifying them at the same time of the forgery. though he may that of the endorsers. who is also payee. -Two months after payment.NEGO . without disclosing an agency. none but the payee can assert any title without the indorsement of such payee. ISSUE WON the defendants were bound to return the money received HELD: YES Ratio Though the defendants were innocent of any intended wrong. -Upon plaintiff’s objections. and that as such they received the money and paid it over to their principals. as agents for the latter.

in all person to whom it paid the money. she has a forged instrument. she delivered the check is genuine. from the check. but it has the remedy to It is only the negotiation based on the forged or recover from the latter the amount it paid to her. who has forged the signature of the from her the money she received for the check. It is not supposed to be its warranted that she has good title to it even if in duty to ascertain whether the signatures of the fact she did not have it because the payee of the payee or indorsers are genuine or not. to defendant-appellant.Since Ebrada was the last indorser of the one person and is presented to a bank by another check. In Instruments Law. have been detected and years before the check was executed the fraud defeated. The business man would accept a check in exchange check was subsequently indorsed to Ebrada for for money or goods unless he is satisfied that the encashment. Ebrada liable to RB. Farrel). Delia Dominguez. recover from the holder the money paid to him on yet as last indorser of the check. and where the for payment. without accommodation party in the check for which she is actual negligence on his part. the last indorser. Why should he be ISSUE: WON Ebrada. who was already dead 11 would in all probability. then Ratio for allowing recovery: Every one with even the lastly Mauricia Ebrada least experience in business knows that no -Treasury issued check in favor of Martin Lorenzo. although the defendant-appellant Re: drawee’s recovery when he paid based on a to whom the plaintiff Bank paid the check was not forged instrument: the drawee of a check can proven to be the author of the supposed forgery. 1975 ~cha~ FACTS such cases the recovery is permitted because SUBJECT: A forged check although the drawee was in a way negligent in DRAWER: Bureau of Treasury (treasury) failing to detect the forgery. or misplaced confidence was the sole cause of the loss. If they demanded RB to refund the check proceeds. The fact that immediately after drawee that the signatures of the payee and receiving the cash proceeds of the check in previous indorsers are genuine. had she performed the duty the check. One who plaintiff Bank. As payee. This is check was already dead 11 years before the because the indorser is supposed to warrant to the check was issued. defendant-appellant immediately purchases a check or draft is bound to satisfy turned over said amount to Adelaida Dominguez himself that the paper is genuine and that by (Third-Party defendant and the Fourth-Party indorsing it or presenting it for payment or putting plaintiff) who in turn handed the amount to Justina it into circulation before presentation he impliedly Tinio on the same date would not exempt her from asserts that he has performed his duty and the liability because by doing so. RB liable to Treasury when the check was presented? Ratio. or because he has the latter to a certain Justinia Tinio. and Dominguez delivered has proof that it is genuine. She was dutyindorsed by the payee of the check. she acted as an drawee who has paid the forged check. responsibility of the person who vouches for it. was liable to permitted to shift the loss due to his own fault in pay the check on its face although she did not assuming the risk. July 31. Where a check is drawn payable to the order of Reasoning.Quevedo Camille Umali REPUBLIC BANK V EBRADA L-40796. TC ruled for or goods through his own mistake. His own RB. and so after. upon the drawee. warranty not question in the amount of P1. may recover the also liable under Section 29 of the Negotiable money paid from such negligent purchasers. Her failure to do so makes her liable Bank pays the amount of the check to a third for the loss and the plaintiff Bank may recover person. probability the forgery would have been detected Re: effect of forged instrument: Where the signature on and the fraud defeated. it is the duty bound to ascertain whether the check in question of the bank to know that the check was duly was genuine before presenting it to plaintiff Bank indorsed by the original payee. INDORSEE: Ramon Lorenzo. unauthorized signature which is inoperative (Beam -as regards the argument that Ebrada did not benefit vs. credulity or recklessness. When sufficient confidence in the honesty and financial Treasury found out that the check was forged. the plaintiff Bank should suffer the of the check is without force or effect (from Section loss when it paid the amount of the check in question 23 of the Negotiable Instruments Law (Act 2031)). the forgery PAYEE: Martin Lorenzo. a negotiable instrument if forged.246. he is deceived he has suffered a loss of his cash RB demanded refund from Ebrada. and its only remedy is against the of ascertaining the genuineness of the check.NEGO . He accepts it only because he proceeds to Dominguez. 21 . 65 SCRA 680. simply benefit from it because of the accidental circumstance that the drawee afterwards failed to detect the forgery HELD: YES. yet if the encasher of DRAWEE: Republic Bank (RB) the check had performed his duty.08 from the extending only to holders in due course. the negotiation -As regards RB. the loss falls upon the bank who cashed reasoned out above. she was supposed to have warranted that and purports upon its face to have been duly she has good title to said check.

-The principle of estoppel effectively prevents BDO from denying liability for any damages sustained by EBC which. ISSUE WON BDO was negligent and thus responsible for any undue payment HELD: YES -In presenting the Checks for clearing and for payment. -EBC presented the checks directly to BDO for the purpose of claiming reimbursement from the latter. BDO is guilty of negligence. EBC thru its Visa Card Department.Quevedo Camille Umali BANCO DE ORO V EQUITABLE BANK CORP 157 SCRA 188.982. BDO made an express guarantee on the validity of 'all prior endorsements'. BDO knows the depositor. However. January 20. BDO sent the checks for clearing through the PCHC. It has taken a risk on its depositor when it allowed her to collect on the crossed-checks.23 and payable to certain member establishments of Visa Card. stamped at the bank of the checks are the defendant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. the risk of wrongful payment has to be assumed by BDO. Depositor is BDO's client. BDO has falsely warranted in favor of EBC the validity of all endorsements and the genuineness of the checks in all respects what they purport to be. Subsequently. and after stamping at the back of the checks the usual endorsements: 'All prior and/or lack of endorsement guaranteed'. Accordingly. EBC discovered that the endorsements appearing at the back of the checks and purporting to be that of the payees were forged and/or unauthorized or otherwise belong to persons other than the payees. paid on the checks. -Thereafter. Gancayco. -No amount of legal jargon can reverse the clear meaning of BDO's warranty. -Following normal procedures. These checks have been made the subject of contracts of endorsement wherein BDO made expressed warranties to induce payment by the drawer of the Checks. EBC paid the checks. her address and her history.NEGO . As the warranty has proven to be false and inaccurate. Without such warranty. drew 6 crossed Manager's checks amounting to P45. Thus. The same principle of estoppel effectively prevents the BDO from denying the existence of the checks. relying upon an action or declaration of the BDO. 1988 ~jojo~ FACTS -Sometime in 1983. The collecting bank has privity with the depositor who is the principal culprit in this case. a certain Aida Trencio. and the defendant cannot now refuse liability for breach of warranty as a consequence of such forged endorsements. EDC would not have paid on the checks. the BDO is liable for any damage arising out of the falsity of its representation. the Checks were deposited with the BDO to the credit of its depositor. -Having accepted the crossed checks from persons other than the payees. -The damage that will result if judgment is not rendered for EBC is irreparable. 22 . BDO refused to accept such direct presentation and to reimburse the EBC for the value of the Checks. its clearing account was debited for the value of the checks and defendant's clearing account was credited for the same amount. -Whether the checks have been issued for valuable considerations or not is of no serious moment to this case.

19) from and through BPI. The court recognizes negligence of the party invoking forgery as an exception. hence general rule does not apply here. She later opened an account at CBC and endorsed the checks there. CBC stamped them with guaranty of prior endorsements and/or lack of endorsement. BPI may claim reimbursement from CBC HELD: NO -Under Sec. CHINA BANKING CORP L-102383.NEGO .. not questioning Lopez’ huge deposit and withdrawals) were negligent in the selection/supervision of their employees and thus both liable. BPI claims the clearing guaranty makes CBC wholly liable for forged checks.462. The real Fernando came on the maturity date of the placement for rollover and claimed forgery of endorsements. impersonated by Susan Lopez INDORSMENT: China Banking Corp.Quevedo Camille Umali BPI V CA. CBC is liable 40% 23 . not verifying Fernando’s signatures.243. collecting bank of the BPI checks -Lopez impersonated Fernando. 1992 ~kiyo~ FACTS SUBJECT: 2 checks for the pretermination of a money market placement DRAWER/DRAWEE: BPI PAYEE: Eligia Fernando. ISSUE WON in the event that the payee’s signature is forged. not asking for the promissory note upon pickup of checks) and CBC (opening account for Lopez with only Fernando’s tax account number as ID. Disposition BPI is liable 60%. 23. the exception is where the party relying on the forgery is precluded from setting up the forgery or want of authority. the general rule is that forged signatures are wholly inoperative and payments through such are ineffectual. 216 SCRA 51. Lopez withdrew nearly the whole amount. preterminated the latter’s money market placement evidenced by a promissory note (P2. Records show both BPI (not calling Fernando to confirm pretermination. BPI cleared them. November 26. who issued her 2 checks.

or at least made random scrutiny of her cancelled checks returned by respondent drawee Bank at the close of each month. forgery is a defense.89.NEGO . -It was only after the lapse of more than two (2) years that petitioner found out about the fraudulent manipulations of her bookkeeper (payees did not receive nor see the subject checks). the amounts did not tally with those appearing in the sales invoices. WON the drawer is precluded from setting up the forgery or want of authority as a defense WON the respondent drawee Bank should not have honored the checks because they were crossed checks.. Likewise. However. together with the corresponding invoice receipts which indicate the correct obligations due and payable to her suppliers. Romero and Benito Lam. YES. a total of eighty-two (82) checks in favor of several suppliers. Boon. The second indorsements were all genuine signatures of the alleged holders. she would have easily discovered that in some checks. the completed checks were submitted to the petitioner for her signature. particularly the invoice receipts. PROCEDURE RTC Caloocan – Complaint for recovery of the money value of the 82 checks: dismissed CA – Appeal: affirmed the decision of the RTC on two grounds. Jr. Feb 9. Romero and Benito Lam. Campos. Ernest L. -It appears that instead of issuing the checks to the payees as named in the checks. As a general rule. the loss must nevertheless be borne by the party whose negligence was the proximate cause of the loss.606. 1993 ~athe~ FACTS -Petitioner Natividad O. Caloocan branch. The Bank refused. NO. the plaintiff falls under the exception. Alicia Galang. she should not have signed those checks. Petitioner signed each and every check without bothering to verify the accuracy of the checks against the corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper. represented by eighty-two (82) checks. and debited against petitioner's checking account . PBCOM 218 SCRA 682. the petitioner demanded from the drawee Bank to credit her account with the money value of the 82 checks for having been wrongfully charged against her account. After the bookkeeper prepared the checks. 24 .Quevedo Camille Umali GEMPESAW V CA. a certain Ernest L. she could have easily discovered the fraud being perpetrated by Alicia Galang. petitioner issued. The checks were then indorsed for the second time with the names of Alfredo Y. Reasoning One thing is clear from the records -that the petitioner failed to examine her records with reasonable diligence whether before she signed the checks or after receiving her bank statements. 4. who. petitioner draws checks against her checking account with PBC as drawee. The petitioner’s negligence was the proximate cause of her loss. WON the drawee Bank may be held liable for damages under any law aside from NIL HELD 1. cancelled checks. The issuance and delivery of the checks to the payees named therein were left to the bookkeeper. The record fails to show the identity of the party who made the forged signatures. Romero and Benito Lam. Alicia Galang delivered them to the Chief Accountant of the Buendia branch of the respondent drawee Bank. -The total amount of P1. accepted them all for deposit at the Buendia branch to the credit and/or in the accounts of Alfredo Y. WON the CA erred in ruling that the negligence of the drawer is the proximate cause of the resulting injury to the drawee bank 2. It was established that the signatures of the payees as first indorsers were forged. WON banking rules prohibit the drawee bank from having checks with more than one indorsement. were credited and paid out by respondent drawee Bank to Alfredo Y. and should have conducted an inquiry as to the reason for the irregular entries. (other issues) 3. an employee for more than eight (8) years. had petitioner been more vigilant in going over her current account by taking careful note of the daily reports made by respondent drawee Bank on her issued checks. namely (1) that the plaintiff’s (petitioner herein) gross negligence in issuing the checks was the proximate cause of the loss and (2) assuming that the bank was also negligent. 2. Had she noticed these discrepancies. and were deposited in the latter's accounts as earlier noted. Gempesaw (petitioner) owns and operates four grocery stores in Caloocan City.Petition under Rule 45 ISSUES (issues relevant to the topic) 1.208. To facilitate payment of debts to her suppliers. Had the petitioner examined her records more carefully. check book stubs. SC. Her customary practice of issuing checks in payment of her suppliers was as follows: The checks were prepared and filled up as to all material particulars by her trusted bookkeeper. and had she compared the sums written as amounts payable in the eighty-two (82) checks with the pertinent sales invoices. following her usual practice stated above. Boon was a very close friend of Alfredo Y. -In the course of her business operations covering a period of two years. Petitioner maintains a checking account with the Caloocan City Branch of the respondent drawee Bank (PBC). The respondent drawee Bank then could have taken immediate steps to prevent further commission of such fraud. Romero. without authority therefor. and could have reported the matter to the respondent drawee Bank. Because of this.

this rule destroys the negotiability of bills/checks by limiting their negotiation by indorsement of only the payee. Ratio Issuing a crossed check imposes no legal obligation on the drawee not to honor such a check. YES. can be acquired through or under such signature. not even by a holder in due course. -Exception: Where the drawer is guilty of such negligence which causes the bank to honor such a check or checks.NEGO . she could have discovered the fraud earlier. The continued occurrence of business transactions of the same nature provides the opportunity for the agent/employee to commit the fraud after having developed familiarity with the signatures of the parties. he cannot be held liable thereon by anyone. the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser. This accounts for the rule that although a depositor owes a duty to his drawee bank to examine his cancelled checks for forgery of his own signature." Reasoning There is no question that there is a contractual relation between petitioner as depositor (obligee) and the respondent drawee bank as the obligor. Article 1170 of the New Civil Code provides -Those who in the performance of their obligations are guilty of fraud. Had the petitioner been more prudent under the circumstances. The drawee cannot be compelled to accept or pay the check by the drawer or any holder because as a drawee. A party whose signature to an instrument was forged was never a party and never gave his consent to the contract which gave rise to the instrument. When it violated its internal rules that second endorsements are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of Boon. Ratio The banking rule banning acceptance of checks for deposit or cash payment with more than one indorsement unless cleared by some bank officials does not invalidate the instrument. the only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof (Sec. as far as the drawer-depositor is concerned. Since his signature does not appear in the instrument. A different situation arises where the indorsement was forged by an employee or agent of the drawer. the forged signature of the payee or indorsee of a note or check. so that any subsequent party may be forewarned that it ceases to be negotiable. or to give a discharge therefor. and those who in any manner contravene the tenor thereof. -Example: If a check is stolen from the payee. NO. he has no similar duty as to forged indorsements. or to enforce payment thereof against any party thereto. The crossed check cannot be presented for payment but it can only be deposited and the drawee bank may only pay to another bank in the payee's or indorser's account. In effect. NIL). he cannot be made to pay because he never made the promise to pay. unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. the check can only be deposited with the payee's bank which in turn must present it for payment against the drawee bank in the course of normal banking transactions between banks. Most of the cases involving forgery by an agent or employee deal with the payee's indorsement. and no right to retain the instrument. it is wholly inoperative. -This section covers both the forged signature of the maker of a promissory note/drawer of a check and forged indorsement. -Example: If a person's signature is forged as a maker of a promissory note. But the drawee will make itself liable to a suit for damages at the instance of the drawer for wrongful dishonor of the bill or check. but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so. it contravened the tenor of its obligation at the very least. 3. In the performance of its obligation. the prohibition to transfer or negotiate must be written in express words at the back of the instrument. i. Under the NIL. such bank may not legally refuse to honor a negotiable bill of exchange or a check drawn against it with more than one indorsement if there is nothing irregular with the bill or check and the drawer has sufficient funds. 4. he incurs no liability on the check unless he accepts it. NO. -Although the holder of a check cannot compel a drawee bank to honor it because there is no privity between them. 5. or done with the active participation of the latter. if it were not actually guilty of fraud or negligence. Instead. The drawer and the payee oftentimes have business relations of long standing. the drawee bank cannot charge the amount thereof against the drawer's account because he never gave the bank the order to pay. However. It is more of a warning to the holder that the check cannot be presented to the drawee bank for payment in cash. Reasoning In the case at bar. 36. are liable for damages. negligence or delay. In this kind of restrictive indorsement. neither does it invalidate the negotiation or transfer of the said check." -General Rule: Forgery is a real or absolute defense by the party whose signature is forged. it is quite obvious that the drawer cannot possibly discover the forged indorsement by mere examination of his cancelled check. Or where a person's signature as a drawer of a check is forged. We hold that banking business is so impressed with public interest where the trust and confidence of the 25 . the agent was the one who perpetrated the series of forgeries.e. the drawee bank is bound by its internal banking rules and regulations which form part of any contract it enters into with any of its depositors.. a chief accountant.Quevedo Camille Umali -The applicable law is Section 23 of the NIL which provides: "When a signature is forged or made without the authority of the person whose signature it purports to be.

26 . Disposition: REMANDED to the trial court for the reception of evidence to determine the exact amount of loss suffered by the petitioner (which one half must be paid by respondent drawee bank to herein petitioner50/50 ratio based on Article 1172).NEGO . if not the utmost diligence.Quevedo Camille Umali public in general is of paramount importance such that the appropriate standard of diligence must be a high degree of diligence. Its liability as obligor is not merely vicarious but primary wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment.

. COURT OF APPEALS [GR 121479]. [GR 128604] Ford drew Citibank Check SN-10597 on 19 July 1978 in the amount of P5. On 15 June 1989.41 was not paid to the government or its authorized agentand instead encashed by unauthorized persons.746. COURT OF APPEALS [GR 121413. with costs against IBAA/PCIB. Citibank and PCIB. In a letter dated 28 February 1980 by the Acting Commissioner of Internal Revenue addressed to Ford officially informing the latter. Ford notified the latter that in case it will be re-assessed by the BIR for the payment of the taxes covered by the said checks. ALSO FORD PHILIPPINES VS. petitions for review by certiorari under Rule 45. the General Ledger Accountant of Ford. as third party defendants.746. Ford discovered that its Citibank Check SN-04867 in the amount of P4. on 11 March 1982.Quevedo Camille Umali PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PICB.746. paid to the BIR the amount of P4.S CITIBANK N. FORMERLY INSULAR BANK OF ASIA AND AMERICA) VS.114. Separately.114. on its face were two parallel lines and written in between said lines was the phrase "Payee's Account Only" -. Upon presentment with Citibank N. with costs against Citibank and IBAA. with leave of court. while Ford filed a "Motion for Partial Reconsideration. in favor of the Commissioner of Internal Revenue as payment of Ford's percentage or manufacturer's sales taxes for the third quarter of 1977. On 27 March 1995.746.746. ordering IBAA/PCIB to pay Ford the amount of P4. The amount of P4. Upon advice of Ford's lawyers.in the amount of P4. Said second payment of Ford in the amount of P4. that its check in the amount of P4. With Rivera's instruction.41. But the court dismissed the complaint against PBC for lack of cause of action. with interest thereon at the legal rate starting 20 January 1983.41 was duly received by the BIR. the proceeds of the check was paid to IBAA as collecting or depository bank. PCIBank and Ford filed before the Supre." Both motions were denied for lack of merit.41 was debited in Ford's account with Citibank and the check was returned to Ford.114. 29 JANUARY 2001]. Forddrew another 27 . ordering Citibank and IBAA/PCIB to solidarily pay Ford the amount of P4. the appellate court issued its judgment affirming the trial court's decision with modifications. the date when the original complaint was filed until the amount is fully paid. Alleged members of a syndicate later deposited the two MCs with the Pacific Banking Corporation (PBC). Ford. As a consequence of Citibank's refusal to reimburse Ford of the payment it had made for the second time to the BIR of its percentage taxes. ordering IBAA/PCIB to reimburse Citibank for whatever amount the latter has paid or may pay to Ford.41 was not paid to the Commissioner of Internal Revenue. He purportedly needed to hold back the check because there was an error in the computation of the tax due to BIR.41 representing the face value of Ford's Citibank Check SN-04867.41. PCIB replaced the check with two of its own Manager's Checks (MCs). the Commissioner of Internal Revenue. PCIB moved to reconsider the decision of the Court of Appeals.114.114.NEGO .746.851.746.706. It was learned during an investigation by the National Bureau of Investigation (NBI) that Citibank Check SN04867 was recalled by Godofredo Rivera. Upon verification. filed a third party complaint before the trial court impleading PBC and Rivera. Ford filed on 20 January 1983 its original complaint before the court. The proceeds of the same Citibank check of Ford was never paid to or received by the payee thereof.746. On 20 April 1979. the trial court rendered its decision. addressed to Citibank and IBAA. AND FORD PHILIPPINES V.114.e Court. The court likewise dismissed the third-party complaint against Rivera because he could not be served with summons as the NBI declared him as a "fugitive from justice". dismissing the complaint in Civil Case 49287 insofar as Citibank was concerned. A BIR Revenue Tax Receipt 28645385 was issued for the said purpose. Ford Philippines drew and issued its Citibank Check SN-04867 -. the date when the original complaint was filed until the amount is fully paid. On 24 December 1985. with interest thereon at the legal rate starting 20 January 1983. Ford. hence. IBAA and Citibank denied liability and refused to pay. Not satisfied with the said decision. [GR 128604] Second Division: Quisumbing (J): 4 concur Facts: [GRs 121413 and 121479] On 19 October 1977. plus costs. representing payment of its percentage tax for the third quarter of 1977.37 representing the percentage tax due for the second quarter of 1978 payable to the Commissioner of Internal Revenue. among others.a crossed check in that. In separate letters dated 26 October 1979. Ford has to pay the said amount within 15 days from receipt of the letter.41 representing the face value of Ford's Citibank Check SN-04867.114.A. elevated their respective petitions for review on certiorari to the Court of Appeals. The aforesaid check was deposited with the Insular Bank of Asia and America (IBAA) and was subsequently cleared at the Central Bank. IBAA was merged with the Philippine Commercial International Bank (PCIB) with the latter as the surviving entity. then Ford shall hold Citibank and IBAA liable for reimbursement of the face value of the same.114.A.

however. Hence.Quevedo Camille Umali Citibank Check SN-16508 in the amount of P6. their actions were not the proximate cause of encashing the checks payable to the CIR. showed lack of care and prudence required in the circumstances. On record. Held [b]: YES. that the switching operation (involving the checks whilein transit for "clearing") were the clandestine or hidden actuations performed by the members of the syndicate in their own personal. it was admitted that PCIB is authorized to collect the payment of taxpayers inbehalf of the BIR. who were acting on their own personal capacity. the mere fact that the forgery was committed by a drawer payor's confidential employee or agent.73. [2] GR 128604 Issue [a]: Whether PCIB is liable for fraud (embezzlement) committed by PCIB employees while the checks were in transit for clearing.NEGO . IBAA/PCIB should receive instructions only from its principal BIR and not from any other person especially so when that person is not known to IBAA/PCIB. The Board of Directors of Ford did not confirm the request of Godofredo Rivera to recall Citibank Check SN. does not entitle the bank to shift the loss to the drawer-payor. Furthermore. the decision of the trial court. PCIB failed to verify the authority of Mr. Held [a]: NO. who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank. Held [a]: YES." and was presented to Citibank for payment. Rivera to negotiate the checks. It is very imprudent on the part of IBAA/PCIB to just rely on the alleged telephone call of one (Rivera) and in his signature to the authenticity of such signature considering that the Ford is not a client of IBAA/PCIB. The findings forced Ford to pay the BIR anew. Citibank Check SN-04867 was deposited at PCIB through its Ermita Branch. covert and private capacity and done without the knowledge of PCIB. Although the employees of Ford initiated the transactions attributable to an organized syndicate. These checks were apparently turned around by Ford's employees. On 9 December 1988. on orders of persons besides the CIR. Thereafter PCIB. Region 4-B. This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession. Issue [b]: Whether the collecting bank (PCIB) was negligent in preparing two manager’s check to replace Citibank Check SN-04867." The checks never reached the payee. PCIB is duty bound to consult its principal regarding the unwarranted instructions given by the payor or its agent. It was coursed through the ordinary banking transaction. Even if PCIB had no official act in the ordinary course of business that would attribute to it the case of the embezzlement of Citibank Check Numbers SN-10597 and 16508. [1] GRs 121413 and 121479 Issue [a]: Whether the forgery committed by the drawer-payor’s confidential employees precludes Ford from recovering the amount of its checks. Rivera's instruction to replace the said check with PCIB's Manager's Check was not in the ordinary course of business which could have prompted PCIB to validate the same. the said two BIR Revenue Tax Receipts were considered "fake and spurious". As an agent of BIR. As to the preparation of Citibank Checks SN-10597 and 16508. held drawee-bank Citibank liable for the value of the two checks while absolving PCIB from any liability. instead of remitting the proceeds to the CIR. it was established that these checks were made payable to the CIR. could not be characterized as the proximate cause of the injury to the parties. Branch 57. The neglect of PCIB employees to verify whether his letter requesting for the replacement of the Citibank Check SN-04867 was duly authorized. Given these circumstances. representing the payment of percentage tax for the first quarter of 1979 and payable to the Commissioner of Internal Revenue. This anomaly was confirmed by the NBI upon the initiative of the BIR. The degree of Ford's negligence. prepared two of its Manager's checks and enabled the syndicate to encash the same. Both Ford and Citibank appealed to the Court of Appeals which affirmed. if any. the petition for review.591. sent to Central Clearing with the indorsement at the back "all prior indorsements and/or lack of indorsements guaranteed. demanded for the said tax payments the corresponding periods above-mentioned. a banking corporation is liable for the 28 . Both were crossed checks. as a general rule. Both checks were "crossed checks" and contain two diagonal lines on its upper left corner between which were written the words "payable to thepayee's account only. As agent of the BIR. As far asthe BIR is concerned.311. because PCIB did not actually receive nor hold the two Ford checks at all. Again a BIR Revenue Tax Receipt A-1697160 was issued for the said purpose. in toto. theBIR. Regional Trial Court of Makati. CIR. while an action was filed against Citibank and PCIBank for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508. Thus. in a letter dated 28 February 1980. in the absence of some circumstance raising estoppel against the drawer.04867.

A bank will be held liable for the negligence of its officers or agents when acting within the course and scope of their employment. Issue [b]: Whether Citibank can raise the defenses that it has no knowledge of any infirmity in the issuance of the checks in question amd that the endorsement of the Payee or lack thereof was guaranteed by IBAA/PCIB and thus. Moreover. in his official capacity. even though no benefit may accrue to the bank therefrom. which is to ensure that the amount of the checks should be paid only to its designated payee. The fact that the drawee bank did not discover the irregularity seasonably constitutes negligence in carrying out the bank's duty to its depositors.Quevedo Camille Umali wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment. The point is that as a business affected with public interest and because of the nature of its functions. For the general rule is that a bank is liable for the fraudulent acts or representations of an officer or agent acting within the course and apparent scope of his employment or authority. Held [b]: NO. For this reason. although a situation exist where the PCIB appears also to be the victim of the scheme hatched by a syndicate in which its own management employees had participated. Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of the proceeds thereof to the collecting bank of the BIR. Series of 1977 provides that any theft affecting items in transit for clearing. 29 . Citibank must likewise answer for the damages incurred by Ford on Citibank ChecksNumbers SN 10597 and 16508. because of the contractual relationship existing between the two. Herein. the bank is liable for his misappropriation of such sum. The clearing stamps at the back of Citibank Check SN 10597 and 16508 do not bear any initials. the bank is under obligation to treat the accounts of its depositors with meticulous care. receives money to satisfy an evidence of indebtedness lodged with his bank for collection. Citibank failed to establish that its payment of Ford's checks were made in due course and legally in order. Citibank.NEGO . Citibank had indeed failed to perform what was incumbent upon it. It may be liable for the tortuous acts of its officers even as regards that species of tort of which malice is an essential element. it has the obligation to honor and pay the same. As ruled by the Court of Appeals. Section 5 of Central Bank Circular 580. as the drawee bank breached its contractual obligation with Ford and such degree of culpability contributed tothe damage caused to the latter. shall be for the account of sending bank. nor will it be permitted to shirk its responsibility for such frauds. a bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these officers or agents were enabled to perpetrate in the apparent course of their employment. always having in mind the fiduciary nature of their relationship. among others. the switching of the worthless checks to Citibank Checks 10597 and 16508 would have been discovered in time. Had this been duly examined. Citibank as drawee bank was likewise negligent in the performance of its duties. Citibank failed to notice and verify the absence of the clearing stamps. And if an officer or employee of a bank. which in this case is PCIB.

Quevedo Camille Umali TRADERS ROYAL BANK V. None of these checks were paid to the BIR. must be reimbursed by Security Bank. In the appellate court. An action was filed wherein it was decided that the networks should be reimbursed for the amounts of the checks by petitioner bank and the latter in turn. HELD: Petitioner ought to have known that where a check is drawn payable to the order of one person and is presented for payment by another and purports upon its face to have been duly indorsed by the payee of the check. IBC and BBC were all assessed for tax by the BIR. it was dutybound to ascertain the indorser’s title to the check or the nature of his possession. It should be further noted that one of the checks was a crossed check. and it pays the amount of the check to the third person. They were found to have been deposited in the account of a third person in Security Bank. it is the primary duty of the petitioner to know that the check was duly indorsed by the original payee. To pay the assessed taxes. it was held that Traders Bank should be the only bank liable. distraint and garnishment against the three networks. 30 . As the taxes remained unpaid. RPN 390 SCRA 608 FACTS: RPN. Its only remedy is against the person to whom it paid the money. the BIR issued a levy. who has forged the signature of the payee. the loss falls upon the petitioner who cashed the check. they bought manager’s checks from petitioner bank.NEGO . The crossing of the check should have put petitioner on guard.

If the bank pays money out on a forged signature. who collected it from the bank. gave the note to the plaintiff. 52 LRA 877 (1901) ~giulia~ FACTS Tolman sues to recover money paid out by the defendant on his account. against a party thereto. and led the plaintiff to believe the he was Haskell. and gave it to AB Homes. and no right to retain the instrument.Quevedo Camille Umali TOLMAN V AMERICAN NAT’L BANK 48 Atl 480. Potter indorsed Haskell's name on the back of the check. fraud was discovered. When a bank receives money to be checked out by a depositor. under a forged indorsement.NEGO . representing himself as Haskell. The plaintiff did not intend Potter to have the money. giving the residence and occupation of Haskell as his own. the depositor being free from balme or negligence. delivering it to Potter. Reasoning In this case the money was intended to Haaskell. When Potter fraudulently indorsed Haskell's name on the check. unless a party against whom it is sought to enforce such right is precluded from setting up forgery or want of authority 31 . and demanded the return of the amount paid on the check to the credit of his account. and the plaintiff gave him a check on the defendant payable to the order of Haskell. Potter. it is to be paid only as the depositor shall order. The bank assumes this duty in receiving the deposit. He thereupon notified the ank. Potter. Held Ratio Yes. He had been looked up and found to be responsible. because his was the only name suggested. it was a typical case of forgery. upon his check. When the note given to the plaintiff became due. or to enforce payment thereof. can be acquired through or under such signature. it must bear the loss. It is a perversion of words to say that it was intended for Potter simply because he had fraudulently impersonated Haskell. went to the plaintiff to get a loan of money. ISSUE WON the bank is liable for the payment which it made on the check. it is wholly inoperative. under the name of Haskell. The plaintiff made an inquiry on Haskell and founding that the residence and occupation correct thereby agreed to nake the loan. supposing him to be Haskell. When a signature is forged or made out without the authority of the person whose signature it purports to be. or to give discharge therefor.

-The checks drawn by Greenfield are made as if drawn by Snyder himself.NEGO . Snyder & Son against Corn Exchange National Bank. paid each of the checks to the trust company through its collecting agents. -The checks were said to have been indorsed by Neimann. it is as if he said to the bank that any check drawn by Greendield should be paid by it as if it was made and issued by him. but nevertheless. they were shown as payable to bearer and nothing therefore need be said in the contention of Snyder as to the liability of the trust company to the bank upon the guaranty of the indorsements on the checks. These checks were paid by the bank and charged to the account of Snyder.M. who was authorized to draw checks in his name against his deposit in the said bank. it is not easy to conceive what else would be. individually and trading as Harrison. Miner to Real Estate Title Insurance & Trust Company of Philadelphia. The court said that if this is not enough to protect the bank from liability for mispayments from his account. -In such case. and that the said checks were not given in due course of the business. trading and doing business under the name of Harrison. 387. -Snyder wants to recover from the bank the amounts drawn from its account.50. Neimann may have been an existing person. there could be no recovery. that the trust company collected the proceeds of the checks without actual knowledge of the character of the business of R. 32 . -The bank said that Neimann was not a real. He is a depositor at the Corn Exchange National Bank.M. 876 (1908) ~ajang~ FACTS -Action was filed by Snyder. but these indorsements were forgeries and were never authorized by him or Snyder. in his capacity as Snyder’s attorney/agent. he was a fictitious name within the meaning of the act of assembly as Greenfield only intended to use this name and never intended for him to receive the checks or have any right to them. -Corn Exchagne Bank. -When the checks were delivered to R. Miner. that Corn Exchange Nat’l Bank had constructive notice of the business of the firm. Snyder & Son. They were said to have been indorsed in blank to R. ISSUE WON Snyder may recover HELD: NO. the indorsements purporting to be those of Charles Niemann were forgeries. He had in his employ a clerk named Edwin Greenfield. an attorney.M. and such fact was known to the person making it so payable..Quevedo Camille Umali SNYDER V CORN EXCHANGE NAT’L BANK 70 Atl. -George Snyder is a broker. but was in legal contemplation. Greenfield drew 4 checks payable to the order of Charles Niemann with a total amount of $ 18. And when Snyder lodged with Greenfield with this power. The 4th check was also indorsed by the trust company but without guaranteeing the previous indorsements. Miner & Co. -Based on the averments that.” -The 4 checks were deposited by R. a copartnership purporting to caryy on a stock and grain brokerage business but is actually conducting a gambling establishment popularly known as a “bucket shop. a fictitious person—and such fact was known to Greenfield when he drew the checks.M. -The intent of the drawer in inserting the name of the payee is the sole test of whether the payee is a fictitious person. Miner. Snyder wants to recover the amount of the checks which were wrongfully paid by the bank. -A check is payable to bearer when it is payable to the order of a fictitious or nonexisting person. relying upon the guaranty by the trust company. The trust company then indorsed 3 of the 4 checks to guarantee previous indorsements to certain banks in Philadelphia for collection. bona fide payee.

33 . -JC Penney Co. it was barred from recovery. -Neither Clearfield nor JC Penney had any knowledge or suspicion of forgery -US filed a case against Clearfield based on the express guaranty of prior endorsements made by Clearfield.Quevedo Camille Umali CLEARFIELD TRUST CO V UNITED STATES 318 US 363. There is no other barrier to the maintenance of cause of action. whether it be the US or another. -The check was placed at the mail addressed to Barner but he did not receive the check. Pennsylvania and was drawn for the services rendered by Barner to the Works Progress Administration. Circuit CA reversed. -But we do not think that he who accepts a forged signature of a payee deserves a preferential treatment. ISSUE WON US is barred from recovery HELD: NO -He who presents a check for payment warrants that he has title to it and the right to receive payment. The drawee’s right to recover accrues when the payment is made. endorsed the check to Clearfiled Trust Co. No such damage has been shown by Clearfield. 63 S. It is his neglect or error in accepting the forger’s signature which occasions the loss. in exchange for cash and merchandise. The drawee. 573 (1943) ~glaisa~ FACTS -A check was drawn on the Treasurer of the US through the Federal Reserve Bank of Philadelphia to the order of Clair Barner in the amount of $24. He should be allowed to shift that loss to the drawee only upon clear showing that the drawee’s delay in notifying him of the forgery caused him damage. If he has acquired the check through forged endorsement. The theory of the drawee’s responsibility where the drawer’s signature is forged is inapplicable here. -Prompt notice of discovery of forgery was not a condition precedent to suit. If it shown that the drawee on learning of the forgery did not give prompt notice of it and that damages resulted. recovery by the drawee is barred. store representing that he was the payee and endorsed the check in the name of Barner and transferred it to JC Penney Co.20. which accepted it as an agent and endorsed it as follows: “Pay to the order of Federal Reserve Bank.NEGO . -It was dated aat Harrisburg.S. the warranty is breached at the time the check is cashed. Ct. is not chargeable with the knowledge of the signature of the payee. -District Court held that the rights of the parties were to be determined by the law of Pennsylvania and since the US unreasonably delayed in giving notice to the forgery to Clearfield. -Some unknown person obtained it and presented it to JC Penney Co. Prior endorsements guaranteed” -Clearfield collected check from the US and paid the full amount to JC Penney.

NEGO - Quevedo
Camille Umali
DETROIT PISTON RING CO. V
WAYNE COUNTY & HOME SAVINGS BANK
252 Mich. 163, 233 N.W. 185 (1930)
~tito_romy~
FACTS
-Helen Culbert was a trusted payroll clerk of Detroit
Piston. She prepared the biweekly payroll and
the checks corresponding therewith. She would
then have these signed by the officer of the
Company who would sign the same without
question. Unbeknown to the Company, Culbert
was also preparing checks to the order of nonexisting persons or former employees which she
subsequently indorsed in the names of the
payees and negotiate them to other banks or
stores. The drawee bank would then pay the
same and debit Detroit for the corresponding
amount.
-The cancelled checks were then returned to the
company on the first of each month. the
bookkeeper would then compare the balance on
the bank statement with Detroit’s own book. She
would then sign a receipt containing the
stipulation “if no error is reported in ten days the
account will be considered correct.
-Because of the increased cost due to the activities of
Culbert, the Company employed auditors to
ascertain the reason for said increased costs.
However, the auditors (it should have employed
Ricky if they really wanted to get to the bottom of
the problem) failed to discover the cause.
-As it turned out, the fraud could have been easily
discovered if someone just compared the payroll
sheet with the time cards punched by employees
in the time clock.
-The company finally discovered the defalcation
amounting to $28,066.66. The Company sued
Wayne County & Home Savings alleging
negligence in paying the questioned checks and
claiming reimbursement of the above amount

plus interests thereon.
-The lower court found for Detroit. Hence the
appeal.
ISSUE
WON Detroit was negligent in the issuance of the
checks and thus estopped from asserting claims
against the Bank
HELD: YES
Ratio The estoppel of the depositor, on the ground of
negligence, to recover for an unauthorized
payment, is based on the failure of the depositor
to act as a prudent businessman in issuing his
checks.
Reasoning At the beginning of the period during
which the fraudulent checks were issued, the
only negligence on the part of the Company
consisted in the failure of its officers to make a
thorough check of the payroll. Each time the
checks were issued, the officers signing them
would compare the checks with the payroll, but at
no time was a complete investigation made, i.e.,
a comparison of the checks with the time cards,
nor was an audit of the payroll ever made. It is
perfectly clear that a complete investigation
would have disclosed the fraud at once.
-A depositor may not sit idly by after knowledge has
come to him that his funds seem to be
disappearing or that there may be a leak in his
business, and refrain taking steps that a careful
and prudent businessman would take in such
circumstances, & w/c if taken would result in
stopping the issuances of fraudulent checks.
Disposition Judgment reversed.

34

NEGO - Quevedo
Camille Umali
MONTINOLA V PHIL. NAT’L BANK
88 PHIL 178; Montemayor; February 26, 1951
FACTS
-Ramos is disbursing officer of USAFFE. As such,
he went to the Province of Lanao to procure a
cash advance in the amount of P800K for the
use of USAFFE. Encarnacion, Provincial
Treasurer of Lanao did not have that amount
in cash. So, he gave Ramos P300K in
emergency notes and a check for P500K.
Ramos went to the office of Laya, the
Provincial Treasurer of Misamis Oriental and
ex officio agent of PNB branch in Misamis
Oriental, to encash the check for P500K which
he had received from Encarnacion. Ramos
worked under him as assistant agent in the
bank branch and Ramos got the job as
disbursing officer from the recommendation
of Laya. Note that the currency being used in
Misamis Oriental and Lanao which had not
yet been occupied by the Japanese invading
forces, was the emergency currency. Laya
did not have enough cash to cover the check
so he gave Ramos P400K in emergency notes
and a check for P100,000 drawn on PNB.
According to Laya, he had previously
deposited P500,000 emergency notes in PNB
Cebu and he expected to have the check
issued by him cashed in Cebu against said
deposit. Ramos had no opportunity to cash
the check because in the evening of the same
day the check was issued to him, the
Japanese forces entered the capital of
Misamis Oriental, and the USAFFE forces
surrendered. Ramos was made a prisoner of
war until 1943. In 1945, Ramos allegedly
indorsed this check (P100K) to Montinola.
-However, Montinola alleges that in 1944, Ramos,
needing money to buy foodstuffs and
medicine, offered to sell him the check.
Montinola, with his agents and Ramos, went
to see President Carmona of PNB Manila to
check the genuineness of said check; after
examining it President Carmona told him that
it was negotiable but that he should not let
the Japanese catch him with it because
possession of the same would indicate that
he was still waiting for the return of the
Americans to the Philippines. He and Ramos
finally agreed to the sale of the check for
P850,000 Japanese military notes, payable in
installments; that of this amount, P450,000
was paid to Ramos in Japanese military notes
in five installments, and the balance of
P400,000 was paid in kind, (4 bottles of
sulphatiasole, each bottle containing 1,000
tablets, and each tablet valued at P100).
Upon payment of the full price, Ramos duly
indorsed the check which now appears on the
back of the document:

-"The words, 'pay to the order of ' -in rubber
stamp and in violet color are placed about
one inch from the top. This is followed by the
words 'Enrique P. Montinola' in typewriting
which is approximately 5/8 of an inch below
the stamped words 'pay to the order of'.
Below 'Enrique P. Montinola', in typewriting
are the words and figures also in typewriting,
'517 Isabel Street' and about 1/8 of an inch
therefrom, the edges of the check appear to
have been burned, but there are words
stamped apparently in rubber stamp which,
according to Montinola, are a facsimile of the
signature of Ramos. There is a signature
which apparently reads 'M. V. Ramos' also in
green ink but made in handwriting."
-M. V. Ramos is handprinted in green ink, under
the signature. According to Montinola, he
asked Ramos to handprint it because Ramos'
signature was not clear. Ramos in his turn
told the court that the agreement between
himself and Montinola regarding the transfer
of the check was that he was selling only
P30,000 of the check and for this reason, at
the back of the document he wrote in
longhand the following:
"Pay to the order of Enrique P. Montinola P30,000
only. The balance to be deposited in the
Philippine National Bank to the credit of M. V.
Ramos."
-Ramos further said that in exchange for this
assignment of P30,000 Montinola would pay
him P90,000 in Japanese military notes but
that Montinola gave him only two checks of
P20,000 and P25,000, leaving a balance
unpaid of P45,000. In this he was
corroborated by Atty. Ramos Jr
-The indorsement or writing described by M. V.
Ramos which had been written by him at the
back of the check does not now appear at the
back of said check. What appears thereon is
the indorsement testified to by Montinola and
described by the trial court as reproduced
above. Before going into a discussion of the
merits of the version given by Ramos and
Montinola as to the indorsement or writing at
the back of the check, it is well to give a
further description of it as we shall do later.
-Montinola filed a complaint in the CFI Manila
against PNB and the Provincial Treasurer of
Misamis Oriental to collect the sum of P100K
the amount of a check issued on 1942 by the
Provincial Treasurer of Misamis Oriental to
Ramos
and
supposedly indorsed
to
Montinola.
I. When Montinola filed his complaint in 1947 he
stated therein that the check had been lost,
and so in lieu thereof he filed a supposed
photostatic copy. However, at the trial, he

35

NEGO - Quevedo
Camille Umali
presented the check itself and had its face
marked and the back thereof. But the check is
badly mutilated, blotted, torn and partly
burned, and its condition can best be
appreciated by seeing it. In explanation of the
mutilation of the check Montinola told the
court that several months after indorsing and
delivering the check to him, Ramos
demanded the return of the check to him,
threatening Montinola with bodily harm, even
death by himself or his guerrilla forces if he
did not return said check, and that in order to
justify the non-delivery of the document and
to discourage Ramos from getting it back, he
(Montinola) had to resort to the mutilation of
the document.
II. Laya stated that he issued the check only his
capacity as Provincial Treasurer, and that the
words in parenthesis "Agent, Phil. National
Bank" now appearing under his signature did
not appear on the check when he issued the
same. The words 'Agent, Phil. National Bank'
which now appear on the check were not
typewritten below his signature when he
signed the said check and delivered the same
to Ramos. According to Laya, when he
issued checks in his capacity as agent of PNB
Misamis Oriental the said check must be
countersigned by the cashier of the said
agency -not by the provincial auditor.
Montinola on the other hand said that when
he received the check it already bore the
words 'Agent, Phil. National Bank' below the
signature of Laya and the printed words
'Provincial Treasurer'.
-TC:
dismissed the complaint. Montinola
appealed directly to this Court because the
amount exceeds P50,000
ISSUES
1. WON the photostatic copy of the check is
acceptable given its mutilated condition
2. WON the words, 'Agent, Phil, National Bank'
were added after Laya had issued the check
TF issued in the capacity as agent of PNB
3. WON Ramos added or placed those words "in
his capacity as Provincial Treasurer of
Misamis Oriental" (obviously, not as agent of
the Bank) below the signature of Laya before
transferring the check to Montinola
4. WON there was valid negotiation (P30,000 only
indorsed)
HELD
1. NO
-a comparison between the photostatic copy and
the original check reveals discrepancies
between the two. The condition of the check
as it was produced is such that it was
partially burned, partially blotted, badly
mutilated, discolored and pasted with
cellophane. What is worse is that Montinola's

excuse as to how it was lost, that it was
mixed up with household effects is not
plausible, considering the fact that it involves
his life savings, and that before the alleged
loss, he took extreme pains and precautions
to save the check from the possible ravages
of the war, had it photographed, registered
said check with the General Auditing Office
and he knew that Ramos, since liberation,
was not after the possession of that check.
2. NO
-If he issued the check as agent of the PNB, then
the bank is not only drawee but also a drawer
of the check, and Montinola evidently is trying
to hold PNB liable in that capacity of drawer,
because as drawee alone, inasmuch as the
bank has not yet accepted or certified the
check, it may yet avoid payment.
-What renders more probable the testimony of
Laya and Ramos the money for which the
check was issued was expressly for the use
of USAFFE of which Ramos was then
disbursing officer. And upon delivery of
P400K in emergency notes and the P100K
check to Ramos, Laya credited his depository
accounts as provincial treasurer with the
corresponding credit entry. In the normal
course of events the check could not have
been issued by the bank, and this is borne by
the fact that the signature of Laya was
countersigned by the provincial auditor, not
the bank cashier.
-said check was issued by the provincial treasurer
of Lanao to Ramos who requisitioned the said
funds in his capacity as disbursing officer of
the USAFFE. The check is not, in business
parlance, 'certified check' or 'cashier's check.'
3. NO
-Naturally, Ramos must have known the
procedure followed as to the issuance of
checks, namely, that when a check is issued
by
the
Provincial
Treasurer,
it
is
countersigned by the Provincial Auditor as
was done on the check. And that if the
Provincial Treasurer issues a check as agent
of the PNB, the check is countersigned not by
the Provincial Auditor who has nothing to do
with the bank, but by the bank cashier, which
was not done in this case. It is not likely,
therefore, that Ramos had made the insertion
of the words "Agent, Phil. National Bank"
after he received the check, because he
should have realized that following the
practice already described, the check having
been issued by Laya as Provincial Treasurer,
and not as agent of the bank, and since the
check bears the countersignature not of the
Bank cashier but of the Provincial Auditor,
the addition of the words "Agent, Phil.
National Bank" could not change the status
and responsibility of the bank. It is therefore
more logical to believe and to find that the

36

. 172 942 (1918) ~maia~ FACTS SUBJECT: a note of guaranty (this is the negotiable instrument in question) was executed by Webster and Molacek as guarantors. may therefore be considered even then. . guaranteeing to the Bank of Commerce of Sulphur the payment of two notes issued by Crafton ($1.NEGO .000 sold to him by meaning of the Negotiable Instruments Law. hence he transferred nothing changes its liability. It was negotiated in a mere drawee to a drawer and therefore breach of trust. he Section 32 of the same law provides that "the is subject to all defenses available to the indorsement must be an indorsement of the drawer Provincial Treasurer of Misamis entire instrument. Note of Guarantee (guaranteeing the notes) Webster and Molacek PAYEE: Security State Bank INDORSEE: Bank of Commerce of Sulphur (current holder) -The note of guarantee was executed when the notes (to be guaranteed) were transferred from Security State Bank to Bank of Commerce. purports to transfer to the indorsee a part BANK OF COMMERCE OF SULPHUR V WEBSTER 70 Okla. Misamis Oriental and against Ramos. Therefore. purports to transfer to the indorsee a part 4) He should have known that a check for such a only of the amount payable. NO indorsee. When Bank of Commerce sued for the fulfillment against the guarantors. At most he may be regarded as a -The check was not legally negotiated within the mere assignee of the P30. (as in this large amount of P100K could not have been case) does not operate as a negotiation of the issued to Ramos in his private capacity but instrument.000 sold a part of the check to him. An indorsement which document. that should this Court grant the prayer 3) The check was not legally negotiated within the contained in the bank's brief that the check be meaning of the Negotiable Instruments Law. later referred to the city fiscal for appropriate Section 32 of the same law provides that "the action.Quevedo Camille Umali addition of those words was made after the only of the amount payable does not operate check had been transferred by Ramos to as a negotiation of the instrument. V. (note: it seems that in effect. It trial court. Lizzie became a co-maker to the note) -Trial court held that the signing of Lizzie at the instance of the Bank of Commerce. V. constitutes a material to the plaintiff. as such assignee. Ramos as stale check. The alteration consists of having the wife of maker Crafton (Lizzie Crafton) sign the note at the instance of the Bank of Commerce after execution and delivery of the guaranty. and that at the time that Ramos regarded as a mere assignee of the P30. 5) Ramos had he retained the check may not now IN SUMMARY collect its value because it had been issued to -Montinola’s complaint cannot prosper because him as disbursing officer. and so examine the original in order to see the actual discharges the instrument. in which case. . the guarantors interposed the defense that they were relieved of liability since the note issued by Crafton had been materially altered. Phil. said check may no longer be available indorsement must be an indorsement of the if the appellant is allowed to withdraw said entire instrument. in which case. 73. Ramos. a Ramos not as a person but M. the disbursing officer of the USAFFE." Montinola Montinola. and Negotiable Instruments Law). Ramos was sold to him by Ramos. without knowledge and consent of the guarantors. as such no longer connected with the USAFFE but assignee." Montinola may therefore not be rather in his capacity as disbursing officer of regarded as an indorsee. the check was issued to M. An indorsement which Oriental and against Ramos.450 and $204) MAKERS: of the 2 notes Crafton. (Section 124 of the alterations supposedly made thereon. he had no right to indorse it National Bank" which converts the bank from personally to plaintiff. alteration of the instrument without the 6) It is absolutely necessary for the court to consent of the parties liable thereon. 2) The insertion of the words "Agent. As observed by the 1) Check long overdue by about 2 1/2 years. was an alteration that defeated the guaranty ISSUE WON the signing of the notes by Lizzie Crafton after the execution and delivery of the contract of guaranty without the consent and knowledge of the guarantors released and discharged the guarantors from the contract of guaranty HELD: YES -the adding of an additional party to a negotiable instrument subsequent to its execution and 37 . may therefore not be regarded as an 4. he is subject to all defenses already a civilian who needed the money only available to the drawer Provincial Treasurer of for himself and his family. At most he may be the USAFFE.

except as far as he may be indemnified by the principal. the original obligation of the principal is altered in any respect.NEGO . if by any act of the creditor. “ -the addition of the name of Lizzie to the note. changed the identity of the said note and its effect and operation. and the character and description of the instrument -“a guarantor is exonerated. payment of which the guarantors guaranteed. without the consent of the guarantor. the rate of contribution. materially alters it. or the remedies or rights of the creditor against the principal in respect thereto. the guarantors are discharged from their liability on the guaranty.Quevedo Camille Umali delivery discharges the original parties when such change is made without their knowledge or consent -the reason why the addition of a name to a note as a joint maker. after its issuance. 38 . Disposition Judgment affirmed. is because it changes the number of parties and their relative rights. and such alteration being made without the consent and knowledge of the guarantors. in any way impaired or suspended.

or like negotiable instrument.W. whereas.with the words and figures placed as herein before shown. or subject itself to the risk f damages.W. In the check in issue: there was a space between the dollar sign and the amount in numbers and the amount in words was written midway of the line provided for it and in the lower left corner “for cow” and when presented it already bore $418.there being no such variation as frequently appears when different ink is used. under which circumstances it is not inappropriate to apply. Furthermore the depositor on the other hand. One who purchases a note. by analogy the caveat emptor rule. is under no manner of compulsion and acts purely at his option or election.Quevedo Camille Umali FOUTCH V ALEXANDRIA BANK & TRUST CO 177 Tenn 348.'s practice to have the checks filled filled out by the parties to whim the check was made). The drawer of this check in this case authorized the payee to fill out the check.L. There is a distinction between bank checks and negotiable instruments of the note and bill class.which made the added words and figures raising the check particularly easy to insert and well high impossible to detect. Foutch the sum $418 called for by the check. This check was wholly written by the payee (because it was W.L. 39 .NEGO . (1941) ~da~ FACTS W.The bank paid to B.not only in pencil.W.upon presentation. Foutch for $18 for which he gave a check to B. Foutch purchased a cow from B. usually with little opportunity for investigation to pay the check of its depositor .L. but the payee having been authorized to fill out the check in his handwriting. payable to his order.owes to his bank the duty to exercise care in drawing checks in order to avoid possible loss. four hundred eighteen dollars and “for cow and note”. no possibility of detection of the check having been thus raised was left open to the Bank. All the figures and writings in the check were in the same writing except for the signature when it was presented to the bank. and charged it to the account of the drawer. Issue: WON the the bank is liable for the overdraft (or should W.which requires prompt discharge. the Bank is under a direct and peculiarly delicate obligation. Foutch bear the loss) Held: The bank is not liable because it was the plaintiff 's negligence which approximately caused the loss and the bank is not guilty of any negligence that contributed to the loss. Foutch.

C.Quevedo Camille Umali SAVINGS BANK OF RICHMOND V NAT’L BANK OF GOLDSBORO 39 A. The date was changed from March 29. losses arising from its subsequent alteration and forgery do not fall upon it but rather upon those who have chosen to accept the same as changed. When the Savings Bank attempted to collect it. -The Goldsboro Bank counters that with a completed draft. 2. -In this suit. Daniel. Assuming that the argument of Savings Bank to be valid.] 40 .000 dollars is a huge amount in the 1920s. and the amount thereof from $6 to $8. The issuing of the note could in no sense be considered as proximate cause of the loss. with whom he had been transacting with for two years. the one whose acts occasioned the loss shall suffer the consequences. but only as to the original face value of the draft. HIDC enjoys status as such only to the extent of the original amount as written by drawer or maker in a proper case.NEGO .C. 3. Norwood or the Goldsboro Bank. Savings Bank’s own negligence is the proximate cause of the loss. NO. insertion or erasure. 3. Norwood (DRAWER). YES. he may enforce payment thereof according to the original tenor. it seems to say that the HIDC albeit protected by the law still has some duty to conduct reasonable inquiry especially when transactions involve huge sums of money. 1374 (1925) ~bry_sj~ FACTS -A. 1918 to June 21. not a party to the alteration. 2. Thus. The Court seems to consider it as a fair rule that nobody should be liable for more than what s/he originally bargained for. the Savings Bank insists that the National Bank of Goldsboro (THE DRAWER) should be liable on the theory that it was negligent or amiss in its duty to ensure that the draft is safe from every reasonable chance of alteration. President of the National Bank of Goldsboro issued a certain draft dated March 29. it is avoided except as against the party who has himself made. fraudulently forged and altered in material respects. Massie. only then did it find out that the draft was forged. drawn against the FIRST NATIONAL BANK OF NEW YORK (the DRAWEE) payable to the order of N. Trusting Massie’s moral and financial strength. ISSUES 1. authorized or assented to the alteration and subsequent indorsers. which would prejudice the bona fide holder’s rights. it will not be liable because it is not the proximate cause of the loss. But when the instrument has been materially altered and is in the hands of a holder in due course. WON Savings Bank can recover from point of view of tort or negligence.470 giving him in exchange a cashier’s check for the same amount. 1918. The note in its forged and altered state is not a contract of the maker of the instrument. Impliedly. NO. a suit based on contract can neither prosper.L. Here. WON Bank can recover from the draft as a contract btwn the parties. Certainly 8.470.R. a commentator on the negotiable instruments law is cited as authority for the liability of the drawer of a bill or the maker of a note who by careless execution of the instrument left room for any alteration. -Massie sold the altered draft to the SAVINGS BANK OF RICHMOND. the SAVINGS BANK OF RICHMOND purchased the draft for $8. WON Savings Bank can recover from the negotiable instrument. Ordinary paper was used and that there was no protectograph or other safety device to prevent alteration. Where a negotiable note was delivered in completed form. Section 3106 of the Negotiable Instruments Law of North Carolina provides: “Where a negotiable instrument is materially altered without the assent of all parties liable thereon.L. -The said draft was thereafter unlawfully and without the knowledge or consent of A. the possibility that it might be altered by the willful fraud or forgery of another was too remote to afford basis of an action either in tort or in contract.” BSJ Comment: In other words. HELD 1. The Court’s ruling here could be justified under the common law rule: as between two innocent persons. 1918 for the sum of $6.

top make corresponding entries in the stubs of the check book. The Colonial bank took the check solely on the responsibility of Davis. the court sees no reason why the bank should be entitled to anything more than indemnity for the loss the depositor’s negligence has caused it *The Court also made a finding that the ordinary rule of principal and agent or master and servant that the principal or master is liable for the fault of his servant or agent in the master’s business apply in this case. but to a third party should not be upheld. Moreover. When Davis altered a check he would punch a new figure in front of those already appearing in the check. WON plaintiff is guilty of negligence 2. the Court sees no reason why they were not chargeable with such information as a comparison of the checks with the check book would have imparted to an innocent party previously unaware of the forgeries. WON defendant bank can claim relief from plaintiff’s negligence HELD 1. If the depositor has by his negligence in failing to detect forgeries in his checks and give notice thereof caused loss to his bank. by the sum of $100. one of the plaintiffs. seal the envelope and put it in the mailing drawer. -in 24 separate instances. either by enabling the forger to repeat his fraud or by depriving the bank of an opportunity to obtain restitution.” . hence the forgeries were discovered and Davis was arrested and punished. To it the plaintiffs owed no duty. As regards the failure to discover the forgeries after the return of the checks and the balancing of the account in the passbook. a check altered by Davis from the sum of $22 to $622 was paid by the defendant to the Colonial Bank in which Davis had deposited it. in the majority of cases. for signaturem together with the bills in payment of which they were drawn.Quevedo Camille Umali CRITTEN V CHEMICAL NAT’L BANK (1902) NY Court of Appeals. it does not accept the doctrine asserted in some of the cases that. the latter could have no claim against the Colonial Bank. 969. Hence this action to recover the amount of these forged checks. As held in Weisser’s adm’rs vs Denison. It is clear therefore that at all times a comparison of the returned checks with the stubs in the checkbooks would have exposed the alterations made in the checks. 171 NY 219. If it were to be held that the plaintiffs are estopped from denying the genuineness of that check as against the defendant. nor is it clear that the plaintiffs would have any direct right of action against that Bank. over and above the sums for which they were originally drawn ISSUES 1. YES In this case. he should be responsible for the damage caused by his default but beyond this his liability should not extend. Critten. It was the duty of Davis to fill up the checks which it might be necessary for the plaintiffs to give in the course of business. After signing a check Critten would place it and the bill in an envelope addressed to the proper party. Against the bank the defendant has ample recourse. On one occasion David did not collect the altered check from the defendant.While the Court hold that this duty rests upon the depositor. opened it. not ti it. pay the bill for which the check was drawn in cash. WON by negligence in its discharge or by the failure to discover and notify the bank. In no case did he change in the stubs the name of the payee of the check. 41 . Of course the knowledge of the forgeries that davis possessed from the fact that he himself was the forger. obliterated by acids the name of the payee and the account specified in the checks. When a check was presented to Critten for signature the number of dollars for which it was drawn would be cut in the check by a punching instrument.E. A rule which might operate to relieve the bank from the liability it assumed when it collected an altered check. the depositor (plaintiff) is estopped from asserting that they are forgeries 3. But with a few exceptions he did not alter the amounts expressed in the stubs. The Plaintiffs employed a clerk named Davis. NO . then made the check payable to cash and raised its amount. and appropriate the excess. and present the checks so prepared to Mr. “the rule is settled that the depositor owes his bank the duty of a reasonable verification of the returned checks. 2. 63 N. merely because the plaintiffs failed in their duty. This work has been entrusted to another person in Davis’ absence. 57 LRA 529 ~mel~ FACTS -Plaintiff kept a large and active account with the defendant. the depositor either adopts the checks as genuine and ratifies their payment or estops himself from asserting that they are forgeries. Davis falsified the additions or total sat the foor of the pages in the check book. Davis abstracted one of the envelopes from the mailing drawer. Nor would it operate justly in a case in which the bank had paid a single forgery unless by the depositor’s default and delay the bank had lost its opportunity to secure restitution. but deposited it to his own credit in another bank. In the present case.NEGO . he would draw the money on the checks so altered from the defendant bank. was in no respect to be attributed to the plaintiffs. by negligence in its discharge or by the failure to discover and notify the bank.

This presumption does not extend to a fact which. not on tort for the allegation of negligence on the part of the defendant is used only to defeat its claim for relief on account of the plaintiff’s negligence. and a new trial granted.NEGO . took other precautions. and their repetition would not have occurred. DISSENTING OPINION Since plaintiffs entrusted the work to a competent agent and. Had Davis been required to obtain the indorsement or guaranty of the plaintiffs as to its correctness. there was evidence to support the finding in their favor.Quevedo Camille Umali 3. The sixth in sequence of these forgeries was a check with the name of the payee erased and “cash” written in the place thereof. as established by evidence. if disclosed would subject the agent to a prosecution for crime or defeat a scheme in which he was engaged to defraud his employer. The teller of the defendant who paid the check and was a witness on its behalf testified that the check showed on its face that the word “cash” had been written in the place for the payee’s name over an erasure.The action brought by plaintiffs was brought on contract. It was held that the defendant was also guilty of negligence in paying the check. that it was in such mutilated condition when it was presented to him that. The rule which imputes to a principal knowledge acquired by his agent rest upon the presumption that the latter has disclosed all the material facts to the former. 42 . before paying it he required Davis to indorse upon the check a receipt for its amount. the forgeries of Davis would have been exposed. NO. Disposition The judgment should be reversed.

receiving in payment the certified check. but to require the drawee to know the handwriting of the residue of the bill is unreasonable. is elementary and sustained by an unbroken current of authority. by the raising of the amount for which they were drawn. payee. giving the amount as $4079. -The doctrine is applied to cases of bills altered in the body.96 was delivered to him. 43 . The reason is that when the bill is presented for acceptance the acceptor looks to the handwriting of the drawer with which he is presumed to be acquainted. and also to those in which the name of the payee has been feloniously changed. gave to the person the sum of $3334 American gold.. be requiring an impossibility. amount $4079..2. Such a rule would be not only arbitrary and rigorous. ISSUE WON Marine National Bank is entitled to the repayment. and amount.. payee Derippe & Co.But the acceptor cannot be presumed to have any such knowledge of the other facts upon which the rights of the holder may depend. and was entitled to the repayment.96. both banks believed the check to be genuine.or any other part of the bill. sent the check to Marine for certification. but unjust. and so it was not estopped from showing the alteration. and does not admit the genuineness of the indorsements. Nat’l City Bank refused to repay the same. Derippe without notice. HELD: YES -That an acceptor of a bill of exchange by acceptance only admits the genuineness of the signature of the drawer. -The next day.Quevedo Camille Umali MARINE NAT’L BANK V NAT’L CITY BANK (1874) Court of Appeals of NY. a person called upon Derippe & Co (gold brokers in NY) stating that he wished to buy some gold for Lunt Brothers.. It would. -Derippe indorsed the check and deposited it in National City Bank. Marine Bank paid the check to Nat’l City Bank.1969. 59 NY 67 (1874) ~eva~ FACTS SUBJECT: A check for $25 (but was altered later) DRAWER: Lunt Brothers DRAWEE: Marine National Bank PAYEE: To the order of Henry Smith -Lunt Brothers who were merchants in NY gave a stranger the $25-check in exchange for the same amount. and thereupon. -The person then altered the $25-check by erasing the date. Disposition Judgment affirmed.NEGO . A memo. and inserting Dec. and asked $3334 gold in currency. -Judgment was rendered for Marine Bank on the ground that it did not guarantee the genuineness of the filling out of the check by certifying. and upon presentation it was duly certified. Before the discovery of the alteration. in most cases. -The drawee is presumed to be acquainted with the drawer’s signature. and being ignorant of the alteration and relying upon the certification. but requested repayment of the amount immediately when it discovered the alterations.

Drawee then notified defendants (Bank of Italy and Popkin) demanding repayment of the amount of the check. (It is not known how Behling got hold of the check). Sa District Court of Appeals. made payable to order of Albert Meyer Co. The 2 then went to drawee bank to have the check cashed. DRAWER: McCormick Steamship Company DRAWEE: Wells Fargo Bank PAYEE: Albert Meyer and Company -Behling. which will make alterations obvious. 4 P. after the check was presented to it. being a depositor of defendant bank. So defendant bank.NEGO . A drawee who has paid the instrument is not a transferee of title as the last holder’s indorsement does not transfer the check but converts it into a voucher. Drawer notified drawee. paid the amount thereof and transmitted it to drawee bank.. -Drawer did not discover the alteration until the original payee made an inquiry several months after the check had been paid. talo rin. and offered the check in question as payment. Disposition Judgment affirmed 44 . ISSUE WON the drawee bank may recover the money it paid HELD: NO -Under Sec. -The presentation of a check to a drawee for payment is not a negotiation. engages to pay “according to the tenor of his acceptance. The name of the payee thereon was erased and the name of one “Harry Behling” was substituted. 214 Cal. Drawee filed action to recover the sum. was altered. 2d 781 (1944) ~jat~ FACTS SUBJECT: A check drawn on Wells Fargo Bank by McCormick Co. should cash it there instead. It involves no warranties as the drawee is not a holder in due course. 62. the drawee bank certified the check but suggested that Popkin. 156. which in turn paid the amount of the check to defendant bank. by accepting the instrument. Talo. -Banking institutions can readily protect themselves against liability on altered instruments either by qualifying their acceptance or certification or by relying on forgery insurance and special paper. for he accepts no other instrument other than the one presented to him-the altered form-and it alone he engages to pay. The person responsible for the alteration is unknown. After presentment. purchased clothes from a store owned by a certain Popkin. *Note: The alteration was made with such skill that it could not be detected.” -It makes for the usefulness and currency of negotiable paper to construe the words “according to the tenor of his acceptance” as referring to the instrument as it was at the time it came into the hands of the acceptor for acceptance.Quevedo Camille Umali WELLS FARGO BANK & UNION TRUST CO V BANK OF ITALY SC of California. the acceptor. an employee of steamship co.

Fernando. Since HSBC advised PBTC 27 days after clearing. negate whatever right it might have had against defendant Bank.608. PLDT drew a check on HSBC in favor of the same bank in the sum of P14. -On Apr 12.05. clearing office. … All items cleared at 11:00 o'clock a.Quevedo Camille Umali HSBC V PEOPLE’S BANK AND TRUST CO G. 9 of the Central Bank and reads thus: "Items which should be returned for any reason whatsoever shall be returned directly to the bank. and HSBC requested PBTC to refund to it the sum of P14. PBTC claims that it is now too late to do so." -The check was duly cleared by HSBC.m. The rule is embodied in sec 4(c) of Circular No. then. Sept 30. ISSUE: WON the Central Bank regulation should be applied. 45 .m.m. and the alteration in the name of the payee was discovered. Peoples Bank and Trust Company. 1965. Its failure to call the attention of PBTC as to such alteration until after the lapse of 27 days would. No. Changco began to withdraw from the account then subsequently closed it. 1970 ~kooky~ FACTS: -On Mar 8. 1965 it was returned to PLDT. and PBTC credited Changco with the amount of the check. but on an etirely different basis. the facts of the present case fall within it. PBTC was notified of the alteration. and would thus preclude or allow recovery by HSBC from PBTC HELD: YES. the applicable Central Bank regulation providing for a 24-hour period. on the same day and all items cleared at 3:00 o'clock p. of the following business day.NEGO . PLDT sent this check to HSBC by mail. Changco had opened a current account with PBTC.R. arguing that since such an indorsement carries with it a concomitant guarantee of genuineness. Four days before. as mentioned in a case cited by HSBC. -CFI dismissed the complaint based on the fact that HSBC allowed 27 days to elapse after clearing before notifying PBTC as to such alteration. All prior endorsements and/or lack of endorsements guaranteed. -HSBC relies on the indorsement (above). L-28226. where he deposited the altered check. shall be returned not later than 8:30 a." If at all. -Moreover.608.05. -PBTC relies on the "24 hour" regulation of the Central Bank that requires after a clearing. it should apply -The “24-hour” clearing house rule issued by the Central Bank was applied in Republic v. and the state of the account with it of the drawee.m. this case illustrates the fact that the SC comes to the same conclusion. shall be returned not later than 2:00 o'clock p. with the following indorsement: "For clearance. PBTC refused. institution or entity from which the item was received. as the minority view regarding the effect of drawee’s payment or acceptance of altered check. whatever remedy HSBC has would lie not against PBTC but as against the party responsible for changing the name of the payee. On that same date. that all cleared items must be returned not later than 3:00 PM of the following business day. "It is a settled rule that a person who presents for payment checks such as are here involved guarantees the genuineness of the check. and the drawee bank need concern itself with nothing but the genuineness of the signature. except for items cleared on Saturday which may be returned not later than 8:30 of the following day. Disposition Decision affirmed NOTE: As per Campos. -Florentino Changco somehow got hold of the check. PBTC is liable to HSBC for alteration. and was able to erase the name of HSBC as payee and instead typed his name." The circular is clear and comprehensive. -The check was presented by PBTC for clearing. in the light of the above Central Bank circular. Equitable Banking Corporation.

“Di na natuto…”): A check for P50 was drawn by Cunanan and Co. It was deposited by Sales in his account in Metrobank. But at that time. He then deposited the check in People’s Bank with the indorsement: “For clearance. This was done fraudulently and without the authority of SMC as drawer. Delgado had already withdrawn the said amount from his Republic Bank account. HSBC advised People’s Bank of the alteration 27 days after clearing. 1996 by Delgado in his account with Republic Bank. paid the amount on the face of the check. April 22. It should possess appropriate detecting devices. clearing office. the remedy of the drawee bank that negligently clears a forged/altered check for payment is against the party responsible for the forgery/alteration. The Court upheld the validity of the 24-hour clearing house regulation. on its account at FNCB and payable to Manila Polo Club was changed to P50.240 on the basis of the latter’s endorsement and guaranty. Roberto Delgado -SMC drew a divided check worth P240 in favor of Delgado.000 to Metrobank. stating: “all prior and/or lack of indorsement guaranteed.240 to PNCB with interest. believing that the check was genuine and relying on the guaranty and endorsement of the petitioner bank. People’s Bank: A check was drawn by PLDT on HSBC payable to the same bank. -When the drawee bank fails to return a forged or altered heck to the collecting bank within the 24hour clearing period. -May 19. the collecting bank is absolved from liability.R. The check was cleared by FNCB which paid P50. The check was indorsed and deposited on March 14. -Metrobank vs. Failure of FNCB to call attention to the alteration of the check negates whatever right it may have had against Metrobank. It was mailed to the payee but landed in the hands of Changco who erased the payee’s name and replaced it with his own name. Disposition Petition for review granted. FNCB (Aha! Gaya nga ng sabi ni Sharon Cuneta. 1966 – FNCB wrote Republic about the alteration. However the unqualified endorsement of the collecting bank on the check should be read together with the 24hour regulation on clearing house operation. 42725. -The trial court ordered Republic Bank to pay P9. one of its stockholders. It endorsed the check to FNCB with a stamp on the back of the check.240.NEGO .000. -Every bank that issues checks for the use of its customers should know WON the drawer’s signature is genuine. Changco withdrew the money and when the alteration was discovered. 1966: FNCB.240 to SMC’s account. No. The check was not returned to Metrobank in accordance with the given period but was cleared by FNCB.Quevedo Camille Umali REPUBLIC BANK V CA. The CA affirmed the TC ruling. as clearing bank. Republic refused. -Republic accepted the check without ascertaining its genuineness and regularity. saying that 1) there was delay in giving notice of the alteration. as drawee. It should be able to detect alterations. 2) it was SMC’s fault in drawing the heck in such a way as to allow the alteration and 3) that FNCB. The Court ruled that the said indorsement must be read with the 24-hour regulation. The alteration was discovered 9 days later so FNCB sought to recover from Metrobank. 1966 -SMC notified FNCB of the material alternation in the check about a month after FNCB had paid Republic Bank. First Nat’l City Bank G. the check was altered by increasing the amount on its face from P240 to P9. -April 19. was absolved of any liability to SMC thus FNCB had no right to recourse against Republic Bank. -Unless the alteration is attributable to the fault or negligence of the drawer. the collecting bank or last endorsor bears the loss.” -March 15. is protected from liability by the 24-hour clearing house rule (in CB Circular 9) HELD: YES -When an endorsement is forged. -FCNB demanded that Republic Bank refund the amount of P9. 1991 ~aida rose~ FACTS SUBJECT: Demand for refund by FNCB from Republic Bank due to clearing by the former of an altered check DRAWER: San Miguel Corporation (SMC) DRAWEE: First National City Bank (FNCB) PAYEE: J. erasures and other intercalations on the check. -After the check had been delivered. 46 . ISSUE WON Republic Bank. HSBC sought to recover the amount from People’s Bank.” This was cleared by the drawee bank HSBC. Jurisprudential rulings on the matter: -HSBC vs. FNCB recredited P9.

the second a form of promissory note and the third a declaration that the work for which the credit was required had been satisfactorily completed. A reading of the record alone might well disapprove this finding. but the signer may be estopped by negligence to deny knowledge of the character of the instrument which he has signed. The trial court determined that. YES. Defendants do not contend that the plaintiff is not a holder in due course.L. they are free from negligence. without negligence. The second note was executed under the same circumstances.T. ~lora~ FACTS -Plaintiff (CLT-holder) brought this action to recover from the defendants (Panacs-maker) the amount of 2 promissory notes. -The work was never completed notwithstanding vigorous efforts made by the plaintiff and the defendants to induce Home Improvement Company to do so. negotiable in form. Mrs. 2. WON the defendants can plead the defense of fraud against the plaintiff. stating that they were in agreement and urged again the defendants to sign. ISSUES 1. the Court refrained from stating as a matter of law that there is insufficient evidence to uphold it. with the consequence that when the first installment became due on the notes the defendants refused to pay. California. for whom Home Improvement Company had done repair work similar to that proposed to be done by defendants. It is possible however. WON plaintiff is a holder in due course. In doing so. The defendants placed their signatures at the point indicated by Hart upon his assurance that it was part of the contract for the work to be done and without having Hart read it to them. has signed an instrument. 47 . Minnesota and Illinois. -Plaintiffs appealed from the judgment. executed in favor of Home Improvement Company (payee) in payment of certain repairs and renovations to be performed by the payee upon two dwelling houses owned by the defendants. that the contract has to be signed at once to get the work started. -Hart was introduced to the defendants by a friend of theirs. WARD. note their demeanor. that such conduct is fraud within Sec. The defendants were alleged to be illiterate. In such cases. and their failure to insist on their request for time to seek independent legal advice. had actual knowledge of a defect in the instruments or any fact that would justify a finding that the plaintiff’s acceptance of the instruments amounted to bad faith on their part. 57. notwithstanding the possession of some knowledge of the English language on the part of the defendants.T. WON defendants are free from negligence. one part being an application for credit. -Defendants denied that the plaintiff was such a holder and as a separate defense. 2. the NIL or other legislation expressly makes fraud in the factum a real defense. If he was not negligent he is not liable. HELD 1. J. in fact a negotiable instrument. Martin thereupon affixed his signature to the contract. 3. Krajer. CORPORATION V PANAC (District CA. 3. The Uniform Act does not cover the question in so many words. bearing in mind that the trial court had an opportunity to view the witnesses. pleaded fraud on the part of the payee in the procurement of the notes by its agent -William Hart. he read the items of work entered in his note book.Quevedo Camille Umali C. They still objected but their scruples were overcome by Hart’s assurance that all the work shall be done to their satisfaction and that it was necessary to start at once. but was deceived as to the character of the instrument and without knowledge of it. Both demurred. plaintiff takes nothing by its action. YES. 1944) 149 P. or that it is one of the defenses under Sec. but. -There were present during the proceedings 2 other persons beside Krajer but neither the defendants requested any of them to read aloud the document or to explain the contents thereof. Hart assured her that it was not necessary. -Hart prepared a document which purported to embody the understanding arrived at on the work to be performed and the cost. He asked defendants to sign it. Panac stating that she did not read it and wished to see an attorney. NO. but had not contemplated giving notes. -The defendants testified that they understood from Hart that the work was to be paid for in monthly installments.NEGO . No evidence was introduced that C. -The notes were indorsed by the payee to the plaintiff which claims to be holder in due course. divided into 3 parts by perforated lines. 55 and hence causes merely a defective title. -In Wisconsin. which was.L. there is no contract because there was no consenting mind. It might also be assimilated to want of delivery. (2d) 901 (1944). -The trial court found that CLT is a holder in due course however. -Hart then presented to them another paper. their neglect to call upon others present to read to them the documents. Brannan’s Negotiable Instrument: At common law a real defense was held in most jurisdictions to exist in those cases in which a person. it also held that fraud was perpetuated against the defendants hence.

the document.” Fraud of this type is not a mere defense nor a mere defect of title such as referred to in Sec. a real defense. -It follows that the defendants were not in position to set up as a defense in this case any equities existing between them and the Home Improvement Company even if. It purported to codify the law of merchant and where there was a conflict to adopt what was considered to be the better rule. 55 would be limited to fraud in the inducement and defenses in Sec. is a real defense. especially the last clause “under such circumstances as amount to fraud” certainly includes all kinds of fraud in factum. at any time. At common law the cases were practically unanimous that fraud in the execution was a real defense. The equities are all in favor of such interpretation. 57 of NIL. or made by statute a defense. Sec. or where its meaning is ambiguous. the weight of authority holds that if a person intending to sign an instrument of an entirely different character places his signature to a negotiable instrument not being due to laches or negligence on the part of the signor. 55.NEGO . nor did it purport to repeal the entire law of contracts. PETERS (Dissenting) -The type of fraud here involved has been referred to as fraud in esse contractus. since the defrauded party really caused the situation and should be the one to suffer. the NIL has no express provision covering the subject. Where the NIL has no excess provision. There are provisions. -Sec. Brannan quoted in the majority opinion approves the minority rule. 3138 of the Civil Coe. however which tend to show that the drafter of the act intended fraud in the execution to be real defense. where the maker is not negligent. -The many courts and legal writers have not approved the rule that fraud in execution. -The overwhelming weight of authority is to the effect that the adoption of the NIL in now way changed the common law rule. provides that the holder in dues course “free from any defect of title of prior parties. the latter is not liable on the instrument. 23. signs a document by reason of fraud of another and honestly and reasonably believes it to be something else other than a negotiable instrument. Disposition Judgment Affirmed 48 . Cogent and compelling reasons exist for this approval. Such is the result of a number of cases which have arisen since the NIL. Disposition Judgment Reversed. It is a factor which renders the instrument non-existent as a binding obligation. cases decided under the law merchant and fundamental rules of contract should be looked to in arriving at a proper interpretation. 16. -Under the old common law view fraud in Sec. -It must be remembered that NIL is not an entirely new statute. and free from defenses available prior parties among themselves. -The applicable rules under the NIL is stated as: “Although there are some decisions to the contrary. fraud in the execution was and remained. but there is a strong line of well reasoned cases contra. real or personal. as found by the court.” When a party.” -Mr. 57. Either possibility would change the common law and protect the holder in due course. -Freedom from negligence on the part of the makers has never been regarded in California in following the common law rule. most of which do not cite the act.Quevedo Camille Umali which was made an equitable defense by Sec. recognized such a defense. as the courts of this state have not. while fraud in the factum would continue to be a real defense analogous to forgery under Sec. fraud in the inception or fraud in execution. by blindly following the common law rule. against a claim of a holder of a negotiable instrument in due course. -In further support of this position it should be noted that the other real defenses are covered by the act and broad interpretation of Sec. and that both before and after the adoption of that uniform statute. to distinguish it from fraud in the inducement which is a mere personal defense. although it has passed into the hands of a bona fide holder for value. they were free from negligence in executing notes. fraud in the factum. -So far as the present problem is concerned. 57 restricted to defenses which were equitable at common law. without negligence. Since this is so it is hard to believe that the framers overlooked this particular defense. when executed is not merely voidable – it is void. If the legislature had intended such defense it would undoubtedly have so provided in no uncertain terms.

-A person who cannot read is not always negligent in not calling on a third person to read the instrument to him. whom makers personally knew couldn’t have objected to such fraud since he was promised commission. it was his apparent acquiescence in the transaction that served to silent any apprehensions of the makers. not the notes -Hart insisted an immediate execution -Hart brushed aside Mrs. Panac’s suggestion that legal advice be obtained -Witnesses to the signing were all friends of Hart. William Hart. Panac. (2d) 547. illiterate. 160 ALR 1285 (1944) ~marge~ FACTS (as found by the District Court of Appeals) SUBJECT: 2 promissory notes in payment of certain repairs and renovations to be performed by payee upon two dwelling houses owned by makers MAKERS: Sps. In fact.T. unable to read or write the English language PAYEE: Home Improvement Company INDORSEE: C.T. Even Krajer.NEGO .I. CORPORATION V PANAC Supreme Court of California 25 Cal.Quevedo Camille Umali C. (2d) 710.I. gained their trust and confidence and secured their signatures to the notes by false representations w/c induced them to believe that they were signing a contract to repair the houses and nothing else. a holder for value in due course -Makers were defrauded by payee in the procurement of the notes. the courts) to decide. 49 . 154 P. Panac were illiterate -Hart employed high pressure method -Only contract for repair was read. The question as to his negligence is one for the jury (that is. Corp. Circumstances showing that makers were not negligent: -Sps. and were not negligent in signing the same. ISSUE WON the defense put up by the makers is a real defense. good even against indorsee as a holder in due course HELD: YES -A negotiable instrument which is void (as when there is in fact no contract or there is fraud in the execution) is not enforceable by a holder in due course in the absence of negligence on the part of the maker. agent of the payee. They were ignorant of the fact that they were signing notes.

ISSUE WON Cohn et al. and we need not now go far as to say that such statutes could never affect the position of an innocent holder. signed and stolen before being issued. in the hands of innocent holders for value. Disposition Judgment for the plaintiffs in the sum of $100 and interest from the date of the writ. were holders in due course. and which do not concern the mode of. and thus entitled to the amount HELD: YES Ratio An instrument that has once been issued.E. by facts which concern merely the manner of their passing from their maker into currency. the Treasurer had completed the issue of fully registered bonds of like amount. 50 . returned. Reasoning The validity of municipal obligations is not affected. -After the bearer bonds had been “delivered to the City Treasurer as agent” in order to have them registered. -It would be unfortunate in many respects if bonds of municipalities passing by delivery in the market should be treated differently in this regard from the negotiable paper of other corporations and individuals. 182.Quevedo Camille Umali COHN V CITY OF TAUNTON 303 Mass. to prosecute to recover the face amount of overdue coupons on certain bonds of the defendant city payable to bearer which have been stolen from the vault of the city treasurer. but had not destroyed or cancelled the bearer bonds nor placed any notation upon them and had kept them in his vault. or the authority for their creation.NEGO . 21 N. innocent purchasers for value without notice. -It is true that the incurring of liability by municipalities is often strictly regulated by statue. -The case cited by the defendant was decided before the negotiable instruments law and at a time when the authorities were divided as to the necessity of an authorized delivery of a negotiable instrument.. discharged. (2d) 281 (1939) ~anton~ FACTS -Action by Cohn et al. and stolen would seem to stand no differently in the hands of a holder in due course than an instrument that has been prepared. but the City Treasurer refused to pay on the ground that the amount covered by the bonds had been paid already. -Cohn and company held them.

Disposition Judgment excepted from is reversed and a new trial ordered. On the rule in Benton v Martin. it was renewed by 4 notes payable 6 months from that date. and Dotterweich took an exception. 93 NE 985. 33 LRA (NS) 892. 1911 ~jonas~ FACTS -Dotterweich (MAKER-defendant) executed and delivered to Smith (PAYEE-plaintiff) a promissory note for $3. as its general agent. to which Dotterweich excepted and moved to submit to the jury the question whether there was a condition that the original note & the insurance policies should be returned in case Smith did not procure a loan of $70. then the spoken word must yield to the written compact. alleging an oral agreement under which neither the notes nor the insurance policies were to become valid & enforceable obligations unless Smith secured for Dotterweich a certain loan of money. then there is a question of fact. When the note became due. cannot be contradicted by oral testimony. -The trial court granted Smith’s motion to direct a verdict. 52 NY 570 – Instruments not under seal may be delivered upon conditions the observance of which is essential to their validity. If the agreement created a condition subsequent (resolutory condition). the issue is one of law for the decision of the trial judge. The motion was denied. therefore there is a failure of the condition which determines the existence of any contract between the parties. the promissory note was rendered effective by an unconditional delivery. and complete in its terms.000 for Dotterweich within a year. it is always competent.740 payable in 6 months. The oral testimony therein was in direct contradiction of the written contract. while in the case at bar the oral testimony tends to show that the writing purporting to be a contract is no contract at all. The agreement of the payee to release the maker and cancel the note upon the happening of a future contingency was a condition subsequent which brought the case within the general rule that a contract reduced to writing. in which case there was never any delivery. In the case of Jamestown Business College Ass’n v Allen. ISSUE WON the defendant’s testimony creates a question of fact for a jury HELD: YES Ratio If the agreement created a condition precedent (suspensive condition). as to the existence or validity of which there was no controversy. -Smith introduced evidence to show that the original note was given in payment of premiums on 2 life insurance policies to the defendant by the John Hancock Life Insurance Company through Smith. 51 . The annexing of such conditions to the delivery is not an oral contradiction of the written obligation as between the parties to it or others having notice.NEGO . The renewal notes were not paid at maturity. in which case there was delivery) Reasoning The oral agreement between the parties testified to by Dotterweich was that the note would be held in Smith’s safe until the loan was procured. Dotterweich denied that the notes were given for value received and that Smith was the lawful holder & owner thereof. On the effect of oral testimony on contracts which are wholly or partly reduced to writing – When the oral testimony goes to the question whether there is a written contract or not. (basically – i think – the issue is whether the oral agreement meant that the notes were never valid. & Smith brought action for payment. but when the effect of the oral testimony is to establish the existence of the written contract which it is designed to contradict or change. upon which Smith relies to support his contentions.Quevedo Camille Umali SMITH V DOTTERWEICH 200 NY 299. without the performance of which the notes never became valid obligations. or that the notes later became invalid because of the failure of the condition. The loan was never made. otherwise the note would be returned & the insurance policy would be null & void.

ISSUE WON the lost check was completed and therefore giving plaintiff Pavilis title to the instrument HELD: NO -The check in controversy was an incomplete instrument when stolen and cannot be enforced in the absence of conduct on the part of the drawer creating estoppel. -Around February 1939. 96. Hoard was not entrusted with a key to the defendant’s office although he did have access to a key kept in a desk in the office in order to unlock the padlock on the inside of the gate across the counter between defendant’s office and the hall. The loss did not result from completion and negotiation of the check by one entrusted with its possession. It was also the practice of such office manager to procure the return of such signed instruments not delivered at the close of business day for the purpose of safekeeping and for the purpose of checking or auditing the same. but it does not follow as a legal conclusion that signers of checks in blank assume the risk of liability in all cases where such instruments are wrongfully taken. Hoard who was named as payee therein. Defendant Farmers Union Livestock Commission argues that: (a) plaintiff was not HIDC.D. Lower court ruled in favor of plaintiff.W. 1939. which had been signed by defendant’s office manager authorized to sign checks. -In Linick v AJ Nutting Co: blank check signed by plaintiff was stolen by Rycoff and Silbermann. 52 . They endorsed the name of the payee and transferred the check to defendant for value who collected the amount of the check from the bank. Hoard was expressly authorized by defendant in the presence of such other bookkeeper to complete and deliver checks only during business hours and only for amounts due them as shown by such account of sales. yet we cannot say under the facts and circumstances of the instant case that defendant was negligent. and. Then Hoard placed his name upon the back of the instrument and delivered the same to plaintiff for value of $102. the latter may recover. It does not appear that defendant company had reason to mistrust its employee and to anticipate the wrongful taking by him of a check signed in blank. and (b) the instrument signed in blank by defendant and having been stolen from his possession prior to delivery had no legal inception or existence as a check. -It was practice of defendant’s office manager. to sign a block of instruments. after the close of the defendant’s office. The cases cited are those in which the party sought to be charged upon a negotiable instrument has entrusted an instrument signed in blank to an agent or some other person who has wrongfully completed and negotiated the instrument.85. Hoard gained access thereto by unlocking the gate across the counter and climbed over the counter into defendant’s office and then opened the safe in defendant’s office by using the combination which he knew. Court held that the check was an incomplete instrument and that negligent custody of the check was not borne out by the facts. 732. date and payee. took certain instruments printed for use as checks. the subsequent completion and negotiation. one C. On or about Feb 24. who was authorized to sign checks. an agency or trust was created by means of which the fraud was committed and the fact that there was no authority for completing the instrument was otherwise wrongfully dealt with was no defense. To hold that a person is negligent in having in his possession a check signed in blank would require something more than the exercise of ordinary care Disposition Judgment of lower court is reversed. 298.Quevedo Camille Umali PAVILIS V FARMERS UNION LIVESTOCK COMMISSION 68 S. completed and negotiated. blank as to amount. -Court concludes: If as a result of negligence such instrument comes into the hands of a holder in due course. in one of which instruments Hoard w/o defendant’s knowledge or express consent. inserted the date. who filled the amount and a fictitious name as payee and presented it to drawee bank. ~monch~ FACTS -Plaintiff Pavilis filed the action to recover upon an instrument alleged to be a check transferred to plaintiff for value by one C. and we are not concerned with a breach of duty as between a depositor and drawee. N. -It is urged that defendant is chargeable with negligence and is estopped to deny liability. amount and payee.NEGO . Defendant appealed. -The drawer owes the duty to use due care in the execution of checks. printed to be used as check at the beginning of the business day and deliver the same to the bookkeeper whose regularly duty was to complete the instruments as checks and deliver the same to customers during the business day. Hoard was employed by defendant as a bookkeeper and clerk. and w/o defendant’s knowledge.

Super. 320. is neither fair nor compatible with public interest. 51 A. The depositor is. and a fictitious name as the payee. The check was stolen. The thief placed the amount $250. To hold otherwise would require the bank to communicate with the drawer as each check was presented. in order to find out if the delivery was intended. ISSUE WON the bank is liable HELD No. FOR INSURANCE ON LIVES AND GRANTING ANNUITIES 160 Pa.NEGO .Quevedo Camille Umali WEINER V PENNSYLVANIA CO. This is too much to be expected. The bank paid the check to the fictitious payee who properly indorsed it. -Weiner signed the check in blank thus putting it in the power of an unauthorized person to fill it in and present it for payment. Weiner’s act was a bar and an estoppel. the date. and enabled the thief to commit the fraud. The depositor’s act made the loss possible and caused it. Weiner sued the bank to recover the amount taken saying that the bank was negligent as it failed to identify the person paid. and to place the burden of loss or its chance to the depository if it does not interview the maker. Such would affect the very nature of checks which is convenience. 53 . Disposition: Affirmed. 2d 385 (1947) ~ice~ FACTS SUBJECT: Bil of Exchange-Check MAKERS: Weiner PAYEE: Blank Weiner signed her name to a blank check.

54 . and others upon estoppel by reason of negligence.Quevedo Camille Umali LINICK V A. as against any person whose signature was placed thereon before delivery. 93. Actionable negligence involves. Thereafter Rycoff and Silberman stole the check. Thereafter they indorsed said check with the name of FA Mann and passed it to defendant A. but by force and fraud. now sues defendant as for money had and received for the amount of the check. Div. a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed” must be read with Sec 34 (NIL 15). only applies when the latter has by his own act. -Not upon negligence: since the paper was stolen and the persons guilty of the crime have been convicted. there can be no recovery upon it. if completed and negotiated. and to hold the maker thereon. The rule that the bona fide holder of an incomplete instrument. who collected the amount from said bank.J. some say that it rests upon an implied authority conferred by the maker upon the person to whom it was delivered to fill in the blanks. -The next section in the same act to the effect that “where the instrument is in the hands of a holder in due course. defendant did not obtain any title to the check. be a valid contract in the hands of any holder. negotiable but for some lack capable of being supplied. with words written over the signature which are sufficient in form to make it a check or note. Plaintiff. But if it appears that the note has never been actually delivered. and cannot recover upon it. was a valid obligation for $147. for value. it was put in circulation. or the act of another. of the instrument. which paper comes into the hands of a third person who is an entire stranger to the transaction. or fault of the maker. and that without any confidence. New York SC. authorized. and presented it to the State Bank. -Court concludes: The delivery of a PN by a maker is necessary to a valid inception of a contract.87. -Sec. ISSUE WON defendant obtained any title to the check which as against the plaintiff. the existence of a duty. HELD: NO -In the case of a commercial paper. and procured it to be certified. 125 N. has implied authority to supply the omission.Y. and there’s no such relation between a thief and his victims. Plaintiff then cannot be charged with negligence giving rise to an estoppel.87 as the amount thereof. 265 (1910) ~rean~ FACTS Plaintiff Linick signed his name to a blank check. confided in or invested with apparent authority by him. So. 140 App. when by voluntary act a party instructs another with such paper with a blank thereon designed to be filled up with a stipulated amount. Disposition Judgment appealed from must be reversed. As to the basis of (plaintiff’s) liability. second. where plaintiff kept his account. even when in the hands of an innocent holder. and third. first. it will not. filled in the name of FA Mann as payee and $147. and a new trial ordered. having taken up said check from the bank. such party is liable to a bona fide holder. -Not upon implied authority: for such doctrine grows out of principal-agent relationship. NUTTING & CO.S. 34 (NIL 15) states: Where an incomplete instrument has not been delivered. and this provision does not apply in the case of an incomplete instrument completed and negotiated w/o authority. injury resulting in consequence thereof. unless a man is guilty of negligence in writing his name upon a piece of paper which by some possibility may afterwards be stolen from him.NEGO . the omission to exercise ordinary and reasonable care in connection therewith.J Nutting and Co. The possession of such a note by the payee or indorsee is prima facie evidence of delivery. without authority. or negligence. put the instrument in circulation as a negotiable paper.

-Grace Simpson could. M.Quevedo Camille Umali SIMPSON V NAT’L BANK OF ROSEBURG 94 Ore. He is only given prima facie authority to fill a blank. in this case. 185 Pac. and was still in that condition when the plaintiff received it. -The plaintiff could not have sued and recovered upon an incomplete instrument. -A person upon whom authority is conferred to complete the instrument. Josephson PAYEE: (intended to be the banki) INDORSEE: National Bank of Roseburg POSSESSOR: Grace Simpson -When the note was executed the name of the payee was left blank. in the absence of knowledge of special instructions given by the maker. 913 (1919) ~yella~ FACTS SUBJECT: Promisory note MAKER: Mrs. However. evidence show that the maker’s intention was that the name of the bank was to be filled in the blank as payee. or that of a transferee. -The plaintiff tells about writing the name of the in blank and avers that the plaintiff is entitled to the indorsement of the defendant herein upon said note and was at all times so entitled to the same ISSUE WON plaintiff has a right against the defendant and the maker of the note HELD: (case was remanded. 147. is not referred to as the holder but as the one in possession. and that the person filling the blank must do so strictly in accordance with the authority given. 55 . as payee.NEGO . Disposition Cause is remanded to allow plaintiff opportunity to amend her complaint and thus enter a court of equity. have filled the blank by writing her own name as payee. court merely discussed rules of the law of merchant if instrument is incomplete) -When the maker of the note left a blank for the name of a payee and delivered the instrument in that condition to another person for value then that person to whom the note was delivered or any subsequent holder could insert his own name.

instituted by Susan Teves.E. do not lose it.Y. -SC reverses appellate court’s decision -SC geld that the note was the VOLUNTARY AND UNINFORCEABLE promise of an executory gift. Now. 94 (1919) ~javi~ FACTS: -Action by Charles Doughtery. through his own witness.NEGO . Some day it will be valuable. an infant. Appelate Division however reversed. and I have signed this note for you. She asked the guardian to make a note for her which she signed. nor dealt with as one.Quevedo Camille Umali DOUGHERTY V SALT 227 N. Use was made of a pronted form which contains the words “value received” -Salt explained how the note came to be: boy’s aunt visited one day and commented how she loved the boy so much to which Salt commented that her love was all talk. 125 N. (no explanation why) -the eight year old child was not a debtor.000 payable at her death or before. has explained the genesis of the promise. the guardian who explained how the note came to be. There is no showing that consideration was given 56 . his guardian against Emma Salt an executrix of the last will and testament of Helena Doughtery (aunt of Charles) -plaintiff received from his aunt a promissory note for $3.” (‘You have always done for me…and I have signed this note for you’…. 200. Aunt replied by saying that she would take care of the boy right at that instant. The promise was neither offered nor accepted with any other purpose -the plaintiff. The aunt was conferring a bounty. In the note were the words “You have always done for me.Sabi ko na nga ba Pinoy si Susan Teves eh) ISSUE: WON there was any consideration for the promised payment HELD: no -TC geld that there was no consideration.

-The note. dated Jan 10. was given in renewal of a former note dated July 1. waives such defense and cannot set it up to defeat or to reduce the discovery on the renewal note. and that the fertilizer was worthless and had no effect whatever upon the crop. -This fact notwithstanding. with knowledge at the time of partial failure of the consideration for the original note. or of false representations by the payee. ISSUE WON defendant is liable HELD: YES. -Defendant contended that the fertilizer was bought for use in producing a sweet potato crop in 1922. (Bank v Howard) Reasoning The time for harvest was in July or August 1922 and the potatoes were dug at that time. 1922.25 against defendant who issued it for the purchase of fertilizer from plaintiff. he executed the renewal note.Quevedo Camille Umali WILLIAM BARCO & SON V FORBES (1927) [place citation here] ~brian b~ FACTS -Plaintiffs brought suit upon a note for $227. 57 . Ratio One who gives a note in renewal of another note.NEGO . TC ruled in favor of plaintiffs. 1923. therefore. Disposition Judgment affirmed. that the defendant knew then that the fertilizer was worthless and that there was a total failure of consideration. It is obvious. Nevertheless.

) says in plain language that the maker of an instrument. L. Kentucky Statutes (sorry Campos did not reproduce the statutes themselves but I think the content doesn’t matter) without which it could not do business in the state. by making it. before the execution of the note.A. the note was void and unenforceable for any reason. HELD: NO -The Negotiable Instruments act (I think. 58 . reiterate the point that the act DOES take from the maker the right to deny the capacity of the payee to indorse and negotiate the note free from defenses available against the payee. In Kentucky statutes. BUT again. 534. admits the payee’s capacity to indorse it. ISSUE WON the failure of a payee in a negotiable promissory note to comply with sections 199b and 571. as between the original parties. 1918B. even though. that the maker admits the payee’s capacity to make the contract for which the note was executed. without which it would not do business in the state. is valid against the maker in the hands of a holder in due course. and hence he may have the right to urge such defense against the original payee.R. however. -The act does not say.Quevedo Camille Umali CHAPTER V: LIABILITY OF PARTIES 1st NATL BANK OF CENTRAL CITY V UTTERBACK 177 Ky. 838 (1917) ~mini~ FACTS SUBJECT: negotiable promissory note PAYEE: Davis Coal Company -(the only fact I could find) The payee in the note was (probably) required to comply w/ one of 2 certain sections of Kentucky law before it was authorized to do business in the state.NEGO . renders it uncollectible in the hands of an owner in due course. 76. Disposition The judgment overruling the demurrer to the amended answer is reversed for proceedings consistent herewith. -It has been held in both Colorado and North Dakota that a note to a foreign corporation that he has not complied with the local law. 197 S.W.

Morans had.00 payable to Petrophil Corporation. Savings Account 1037001372 was only P26. GR 105836. mere accommodations on the part of funds.30 -The following day. In the present case. at most. The effected by personal checks upon delivery. 24 hours to replenish their balance in the bank. a bank is not liable for maintain a zero balance in their current account. presentment on Dec 14. next day.090.NEGO . the collecting checks were processed.00. entitles the savings accounts). The Morans filed a bank to notify him of the necessity to fund certain complaint for damages. where the bank possesses Corporation on a cash on delivery (COD) basis. Pandacan branch presented the had an available balance of P26. he must first show that he had on deposit through a Pre-Authorized Transfer agreement or sufficient funds to meet his demand.666. had his available balance in the bank and not rely on the committed a "grave error". He must personally keep track of Belen Ragodo. the customer service officer.A check.Quevedo Camille Umali MORAN V CA. CityTrust Banking Corp. Legally. these checks were dishonored due to "insufficiency of were.104.30 and the checks for collection. George Moran demanded an -A drawer must remember his responsibilities every time explanation from the bank. the -Spouses George and Librada Moran are the owners of banker agrees to pay checks drawn by the depositor the Wack-Wack Petron. which unfortunately was too late to prevent the He then withdrew P40k from Savings Account A and dishonor of the checks. Mar 7. was not enough to 14 Dec 1983." since Petrophil deposited the two checks to its account 15 December 1983 was the actual date when the with the Pandacan branch of PNB. to balance. dishonor the checks because there were no Petrophil cancelled their credit accommodation. As a special privilege to the drawer to substantial damages without any proof of Morans. failure of a bank to pay the check of a merchant or a -The Morans maintained 3 joint accounts (1 current and 2 trader. Furious and upset. between the time of issuance of the checks on Dec 12 and 13 and HELD: NO. while transfers from the other savings maintain a suit to recover a specific amount from his account can be made be the bank automatically bank. The sufficient cash deposited to fund the two checks. deposited the amount to the current account. that of a debtor and creditor. bank. 230 SCRA 799. If ever the spouses Moran on previous agreement. Moran’s Current Account had a zero cover either of the two checks. the bank allowed them to actual damages. as distinguished from an ordinary bill of exchange. when the deposit is sufficient. at the very -The relationship between the bank and the depositor is least. the Morans. -The bank was also under no obligation to give notice P66. checks he previously issued. its refusal to pay a check on account of insufficient Transfers from one of the savings account to the funds. when PNB. payment. notwithstanding the fact that a deposit may be current account could only be made with prior made later in the day. When the Morans' checks bank. as was his regular practice. George Moran went while Current Account 37-0006-7 had no available to the bank. the the Philippine Clearing House Corporation in the available balance of Savings Account which was the afternoon of the same day. is ISSUE: WON a bank is liable for its refusal to pay a supposed to be drawn against a previous deposit of check on account of insufficient funds but wherein a funds for it is ordinarily intended for immediate deposit may be made later in the day. at around 10am. sufficient funds to speak of in the first place.576. It was only on 15 December 1983 at around personally oversee their daily transactions with the 10:00 a. it is bound to honor his checks Orders were made by telephone and payments were to the extent of the amount of his deposits. Conversely. They regularly purchased provided that said depositor has money in the hands bulk fuel and other related products from Petrophil of the bank. while Savings Account covered by the PAT 1983. The records show that on subject of the PAT agreement. funds of a depositor. Before a bank depositor may authorization. By virtue of the contract 59 . the bank had all the right to temporarily stop business operations. -The available balance on 14 December 1983 was used -On 12 December 1983. Non-delivery of gasoline forced Morans to CityTrust.m. Regalado. drew a check for by the bank in determining whether or not there was P50. that the necessary funds were deposited. He was told that Amy he issues a check. The totalling to P106. occasions were given notices every time a check -Librada (wife) told George that Petrophil refused to was presented for clearing and payment and there deliver their orders on a credit basis because the two were no adequate funds in their accounts. He deposited money to the 2 savings account.39. On 14 December balance. Hence.104. as valued clients. PNB presented them for clearing with were dishonored due to insufficiency of funds.268. the available balance for other Savings Account had P43. 1994 ~ajang~ FACTS of deposit between the banker and its depositor.666 was also transferred from the other Savings before dishonoring checks drawn upon insufficient Account to the current account through the PAT funds. In turn.00. PAT. In addition. two checks in question was "DAIF/12-15-83. the Moran issued another check in the although what was stamped on the dorsal side of the amount of P56.

(2) Moral damages P20. 2. 2. It is true that under Art 2217.000. YES. an award of P5T by way of temperate damages is sufficient. 40 SCRA 144 ~ricky~ FACTS DRAWER: Leopoldo Araneta. (citing the Code Commission) definite proof of pecuniary loss cannot be offered although the court is convinced that there has been such loss.000. exemplary to P1. The question is WON there is reason to conclude that Araneta did sustain some pecuniary loss although no sufficient proof of the amount has been adduced. the amounts of the checks involved & the fact that the Bank tried to rectify the error. (4) Exemplary damages P10. Upon inquiry. L-25414 July 30. Stamped “Account Closed” and returned to clearing bank despite sufficiency of drawer’s deposit balance. similar events occurred later. It was actually paid by the drawee to First National City Bank but later claimed it was inadvertently made and requested the amount be credited back. -From the nature of some cases. The judge should be allowed to calculate moderate damages in such cases. For instance. rather than the plaintiff should suffer. -Because of these incidents. and (5) Attorney’s fees P10. from the nature of the case. TC awarded all items. be proved with certainty. 1971.000. Any adverse reflection thereon constitutes some material loss to him. it being a significant part of the foundation of his business. social humiliation. although belatedly. DRAWEE: San Francisco main office of the Bank of America SUBJECT 1: Check for $500 payable to cash.. -Araneta is a merchant of long standing and good reputation in the Philippines. wounded feelings. the small size of Araneta’s account with the Bank. Ratio The financial credit of a businessman is a prized and valuable asset. CA eliminated actual and temperate (for failure to prove an alleged purchase of jewels for profit) and reduced moral damages to P8. drawee recalled the check from First National and honored it. Considering. NO.000. WON the CA erred in eliminating temperate damages. without redress from the defendant’s wrongful act. Bank acknowledged error and sent a letter of apology to payee Harry Gregory of Hongkong and requesting that no adverse reflection be made on drawer. Disposition Judgment of the CA MODIFIED by awarding temperate damages of P5. Stamped “Account Closed” and returned to clearing bank (Wells Fargo Bank) despite sufficiency of drawer’s deposit balance. First National in turn wrote Saldaña but before her reply was received. kuya?! ) SUBJECT 3: Check for $150 payable to cash drawn against the same bank.000. injury to one’s commercial credit or to the goodwill of a business firm is often hard to show with certainty in terms of money. 60 . WON the CA erred in not granting moral damages for mental anguish.Quevedo Camille Umali ARANETA V BANK OF AMERICA No.000 and attorney’s fees to P1. SUBSEQUENT INDORSEMENT: To Rufina Saldaña who deposited it to her account with First National City Bank of New York which in turn cleared it through the Federal Reserve Bank. The CA considered his reputation as an established and well known international trader as well as his wounded feelings and the mental anguish he suffered which caused his blood pressure to rise beyond unusual limits necessitating medical attendance for an extended period. however. However. etc.000. (3) Temperate damages P50.000. separately from his wounded feelings and mental anguish.000. besmirched reputation is a ground upon which moral damages may be claimed but the CA did take this element into consideration in adjudging the sum of P8T in his favor. (Ano ba talaga. His claim for temperate damages is legally justified.” and contends that Araneta failed to show such loss in this case which the CA upheld. Matter considered closed. ISSUES 1. Araneta filed suit for the recovery of the ff: (1) Actual damages P30. Reasoning The Bank cites Art 2224 which provides that “temperate or moderate damages. which are more than nominal but less that compensatory damages may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot. HELD 1. Dishonored and stamped “Account Closed” despite sufficiency of drawer’s deposit balance.000 and increasing attorney’s fees to P4. separate and distinct from the damages recoverable for injury to business reputation. besmirched reputation. SUBJECT 2: Check for $500 payable to cash drawn against the same bank.NEGO . Reasoning Araneta contends that moral damages should have been granted for the injury to his business standing or commercial credit.

informing Singson of the garnishment of his deposits. assess not only nominal but also substantial damages. when the plaintiff is not a merchant or trader. Hollingworth INDORSEE: Kingston Garage -The check was dishonored and marked “No Account” by drawee bank although. the recovery is limited to the amount of the check. -Clerk of bank. by virtue of the statute. wanton and malicious. he may recover such sum as special damages as the jury shall find. 549. drawer had on deposit $50. -A depositor. the bank is liable for a breach of its contract. ISSUE WON drawer may recover compensatory and punitive damages from drawee HELD: YES -Upon the refusal or failure of the bank to pay the check of its depositor. -2 checks issued by Singson in favor of Lega Corp. Believing that Singson had no more control over his deposits. a bank may be held liable in tort to its depositor whose check it has wrongfully refused or failed to pay. Drawer was arrested and tried on the charge of having given a worthless check. not only in contract but also in tort. yet more than nominal damages may be given. Singson and Lobregat appealed. prepared letter for Bank President’s signature. the action being on contract. CFI dismissed complaint. to recover the damages which he has sustained. may maintain an action against the bank. negligent.Quevedo Camille Umali WOODY V NATIONAL BANK OF ROCKY MOUNT 194 N. -Singson commenced present action against bank and its president for damages because of illegal freezing of account. ISLANDS 23 SCRA 1117. drawn against said bank. ISSUE WON damages may be awarded HELD: YES -Existence of a contract between parties doesn’t bar commission of a tort by one against the other and the consequent recovery of damages therefore. bank dishonored the checks. -Notwithstanding that the relation of the bank to its depositor is that of debtor and creditor.C. and that the jury may.NEGO . The depositor may recover of the bank the amount of his check. and.L. upon the facts. upon reading name of plaintiff and w/o informing himself that garnishment was merely for deposits of Villa-Abrillle and Bona. June 27. Concepcion. Disposition Judgment reversed. but not VilllaAbrille. -Even if such actual loss or injury is not shown. though he cannot from the nature of the case furnish independent. were deposited by drawee. to pay. 61 . It can hardly be possible that a customer’s check can be wrongfully refused payment without some impeachment of his credit. Demurrer sustained in TC. which must in fact be an actual injury. 140 S. with interest and cost. insofar as VillaAbrille’s credit against the bank were concerned. He was acquitted. distinct proof thereon. with interest from date of demand and refusal.E. at that time. when the plaintiff is a merchant or trader. SINGSON V BANK OF THE PHIL. 1968 ~chriscaps~ FACTS -Singson was one of defendants in civil case where judgment was rendered against him and codefendants Lobregat and Villa-Abrille. the costs of the action. whose check has been wrongfully dishonored by the refusal or failure of the bank on which it was drawn to pay the same. -This action for compensatory and punitive damages alleges that drawee’s act was willful. 150 (1927) ~joey~ FACTS SUBJECT: check for $6 DRAWER: Woody DRAWEE: Bank of Rocky Mount PAYEE: E. Writ of garnishment was served upon BPI in w/c Singson had account. will compensate him for the injury resulting from the wrong done him by the defendant.

62 . 2s 119 (1948) ~’del~ FACTS -Vassil Speroff had drawn a check on First-Central Trust Co. it was the duty of FCTC NOT to pay after it had received the order of Speroff. ISSUE WON the statement of release signed by Speroff constitutes a valid defense HELD: NO. the FCTC’s defense of exercising good faith and reasonable care (which it interposed in its amended answer) is a valid defense so the Court remanded the case back to the Court of Common Pleas for trial on that issue. 415. The Court upheld the CA’s two grounds for avoiding the statement of release. On contrary to public policy -It is elementary that a bank is required by law to act in good faith and exercise reasonable care in its relationship with its depositors. (FCTC). the obtaining from Speroff of a purported release from liability for inadvertency or oversight as a condition of the order to stop payment of the check was contrary to public policy and did not relieve FCTC from its duty to act in good faith and exercise reasonable care.Quevedo Camille Umali SPEROFF V FIRST-CENTRAL TRUST CO 140 Ohio st. -Now. -FCTC admitted to the drawing of the check and to having received the notice not to pay. it interposed the defense that Speroff signed a document stating that Speroff agreed to indemnify FCTC against any loss resulting from the nonpayment of said check and that it is expressly understood that it will not be held responsible if it paid the check through inadvertency or oversight. -In this case. However. -Hence. this appeal. CA reversed saying that said statement of release was void as it was contrary to public policy and void for want of consideration. -He eventually notified FCTC that said check be not paid. What consideration or benefit was received by Speroff as promisor and what detriment was suffered by FCTC as promise as a result of this statement? NONE so clearly there was no compliance with either of the fundamental requirements as to consideration. On want of consideration -Under the reciprocal rights and obligations inherent in the relationship existing between a bank and its depositors.E. However. Disposition Judgment was modified and cause remanded. this was a new element in the relationship. when Speroff was asked to sign a statement or release to the effect that the bank wouldn’t be held responsible if it would pay the check. 79 N. he sues FCTC to recover the amount of said check.NEGO . -The Court distinguished that FCTC’s defense of purported release was a void and invalid defense. -TC rendered a judgment for FCTC. Hence.

78 N. The following day. -But based on case law. The doctrine of subrogation or equitable assignment is not properly applicable under such circumstances. after breaching its depositor's instructions to involve him against his will in litigation with a third party in order that the bank may recoup a potential loss resulting from its own error. Co & Ltd. Caracanda presented it for payment and plaintiff paid it. Our courts have never permitted a bank in a commercial transaction to such as this. 465 (1948) ~jaja~ FACTS SUBJECT: a check for $25. The complaint alleges due demand upon both defendants and nonpayment and prays for judgment in the sum of $25.000 against Arbeedee “and/or” Caracanda. 2d. 150 NE 176 (1926) ~iNa~ FACTS SUBJECT: bill PAYEE: Hazel Lawless DRAWER: Norris J. Arbeedee drew such a check on its account in the plaintiff bank and delivered it to Caracanda. Caracanda presented the check for certification and it was certified by plaintiff through mistake. Judgment affirmed.E. Temple -On the instrument appears ME Temple's signature -ME Temple contends that the mere signature of the name of the drawee on the bill cannot fulfill the requirements that the signification of the assent of the drawee must be in writing and must be signed. The common practice before the NIL was to write the word "accepted" + the signature on the face of the bill. ISSUE WON the signature of the drawee is sufficient acceptance . A bank may protect itself by contract with its depositor so as to limit liability on a stop payment order.NEGO . When that has not been done.Y. the signature is both a writing and signing. DRAWEE: Chase National Bank of City of New York Arbeedee and defendant Caracanda entered into an agreement for the purchase of sugar which provided that Arbeedee and should deliver a check for $25. Plaintiff thereupon demanded payment of the $25. The name alone is constantly holden to satisfy the requirement.Quevedo Camille Umali CHASE NATL BANK OF CITY OF NY V BATTAT Ny Court of Appeals. LAWLESS V TEMPLE 254 Mass 395.000 to Caracanda to bind the transaction and that an amount would be returned upon receipt by Caracanda of a letter of credit to obtained by Arbeedee. HELD: YES -Acceptance must be in writing because sound policy requires that some substantial and tangible evidence of the contract is more reliable in nature than the statement or recollection of witnesses. -A drawee may be charged as acceptor although he writes merely his name upon the bill and that anyone taking the bill has the right to fill up a blank acceptance on the same principle that a holder may fill up a blank indorsement 63 . the common law liability is absolute in the absence of ratification. Thereafter Arbeedee requested plaintiff to stop payment on the check.000 from Caracanda. That was refused. When advised of the payment of the check Arbeedee insisted that plaintiff make no debit against it account asserting that Caracanda has no legal right to the money. ISSUE WON the complaint fails to state a cause of action against Arbeedee HELD: YES -The complaint failed to allege ratification by Arbeedee after learning of the payment by plaintiff to Caracanda and there are no alternative allegations of fact upon which to rest such a cause of action. 185. Temple DRAWEE: Maurice E.000 as payment for the purchase of sugar DRAWER: Arbeedee PAYEE: Caracanda Bros. 297 N.

the cashier made the unsigned notation: "Hold for Moore Brothers $350.Quevedo Camille Umali KILGORE NATL BANK V MOORE BROS. where he refuses within 24 hrs after delivery to return the bill accepted or non-accepted to the holder. and a refusal on the part of the drawee. LUMBER 102 SW 2d 200 (1937) ~chrislao~ FACTS -Waddell transacted with Moore Brothers. complying as well with the other two requities).J. Gallaer. was not acceptance ISSUE WON failure to return the checks to the holder or the collecting bank within 24 hrs amounts to acceptance HELD: YES. Moore that the checks had been returned by Kilgore Bank unpaid. One of the checks was paid.J. In the present case. -The notation in the bank's ledger "Hold for Moore Brother.NEGO . As we have said. then it was evidently the intention of the legislature that the non-return of the bill within the specified time. Moore and the cashier of Kilgore Bank had an ORAL agreement. Pennsylvania amended 64 . where he refuses within such other period as the holder may allow to return the bill accepted or non-accepted to the holder. However. is deemed to have accepted the checks. having failed to return the 5 checks to the collecting bank within 24 hrs after delivery. Bullock DRAWEE: First National Bank of Gallitzin PAYEE: Charles W. Jr. are conditions precedent to an acceptance -No prior demand from holder is required because to require so is not to the convenience or interest of the holder -The manifest purpose in requiring prompt return of the bill is in the interest of and for the protection of the holder -If this section had in view the protection of the holder. and is therefore. This statement (as opposed to the oral promise to pay) does NOT EVEN make any contract. WON a demand from the holder for the return of the bill. Acceptance is usually made by writing "accepted" and signing immediately below. this should have been in writing (and of course. Moore brought Waddell to Kilgore Bank where Waddell.00" -G. $350. the liability of Kilgore Bank to Moore Brothers depends entirely on the BARE ORAL PROMISE of the drawee bank to pay. was not. A few days later. Campos enumerates the ff requisites: 1)it must be in writing 2)it must be signed by the drawee. Grand Saline notified G. -2 checks were deposited by Moore Brothers in Grand Saline Bank for collection. however. oral or written. he destroys it. or order -Subject checks were deposited in various banks and then. The cashier promised Moore the payment of said checks once presented again. ISSUE WON Kilgore is liable for the other check HELD: NO. Waddell instructed Kilgore bank to pay Moore. The other. -The drawee to whom a bill is delivered for acceptance is deemed to have accepted it under Section 137 where: 1. On the ledger of the bank in connection with Waddell's account. will make the drawee an acceptor -The drawee bank. and 3) it must not change the implied promise of acceptor to pay only in money. 2. liable for their amount *After the decision. a firm engaged in the lumber business. 68 Atl. saying that mere retention of the checks unaccompanied by its refusal to return them.J. 21. to pay. 955 (1908) ~apple~ FACTS SUBJECT: 6 checks DRAWER: Samuel R. As payment for the lumber he purchased. and 3. regardless of the cause. -Because of this. -TC and Civil Appeals: in favor of Moore Brothers. the drawee's signature alone is NOT sufficient -The plain purpose of 132 is to prevent any liability to the holder of a check from arising from the bare oral promise of the drawee bank to pay the check. G. WISNER V FIRST NATIONAL BANK OF GALLITZIN 220 Pa. Section 132 governs. This prompted Moore to file suit against Kilgore Bank to recover amount of the last mentioned unpaid check. Moore ordered Grand Saline to forward the checks to Kilgore again. forwarded by said banks to drawee bank for payment -5 of the checks were not returned by the drawee bank to the forwarding banks for more than 2 days -Holder of the checks sued the drawee bank for payment on the theory that its failure to return the checks within 24 hrs after receipt thereof constituted acceptance -TC ruled in favor of drawee bank.00" adds no force to said promise. Waddell drew 2 checks wroth $350 drawn against Kilgore National Bank.

Urwiller was advised by the Ravenna bank late Thurs afternoon.Quevedo Camille Umali Section 137. It creates a new liability upon the part of the acceptor. 164 Neb. that the mere retention of such bill by the drawee. 83 N. unless its return has been demanded. -Actual return was not made to the Federal Reserve Bank until Wed. for either breach of contract or for tortious breach of duty. to destroy the effect of the decision. ISSUE WON retention of a check by a drawee bank for more than 24 hours after it is presented to it for payment constitutes an acceptance of the instrument so that the drawee bank is bound to pay it HELD: NO Ratio 'Presentment for payment and presentment for acceptance are two different acts well known to the law of negotiable instruments. 1953.NEGO . Dec 12. The difference between the object and effect of presentation for these respective purposes is very marked. 65 . but mark it for 'return." URWILLER V PLATTE VALLEY STATE BANK SC Nebraska. The check has never been paid. and gives new life to the instrument. Payment extinguishes the debt and puts an end to the paper evidencing the same.. by drawee bank which had refused payment on grounds of insufficiency of funds in drawer's account. will not amount to an acceptance.' because the drawer thereof did not have sufficient funds on deposit in his account with appellee. including cash items. On Mon it was decided not to pay the check.W. Lower court dismissed such action. We affirm.. The next day. which had returned check on account of insufficiency of funds on deposit in drawer's account. McCord issued to Urwiller his check for the sum of $2. Urwiller’s wife deposited this to his account in the Ravenna Bank. -The check was received in a cash letter during business hours on Saturday.’ Disposition Trial court was correct in dismissing his petition. The bank then forwarded the check for collection in the usual course of business through regular channels: Ravenna Bank -> Bank in Lincoln -> Omaha branch of the Federal Reserve Bank -> Platte Valley State Bank (PVSB).2d 88 (1957) ~rach~ FACTS SUBJECT: Holder's action against drawee bank. of the fact that payment of the check had been refused although the check was not actually returned to him until Saturday. 630. The following proviso was added: "Provided. DRAWER: Ira McCord who had an account in defendant bank DRAWEE: Defendant Platte Vlley State Bank PAYEE: Plaintiff Norton Urwiller -In payment of his purchase of hogs. holder would be left to his common law rights. The check was proofed on the day it was received and posted for action on the following business day. This delay was caused by the fact that bank examiners came and assumed control of all the records of the bank. holder appealed. which was Monday.11.' -‘In absence of statutory right. on Mon morning.491. while acceptance has the very opposite effect.

66 . Hence. ISSUE 1.) -PNB requested photostatic copies of the check – was received by bank. of making the necessary inquiry on the matter.504..G. It would be an empty gesture if the appellant did not mean to assume the obligation of paying the check and holding sufficient deposit of the drawer for the purpose. (Province of Samar by this time still had P84. When it requested the Bureau of Posts to furnish it with photostatic copies of the check. Cebu Branch PAYEE: Paulino Santos SUBSEQUENT INDORSEMENTS: Paulino Santos indorsed to James McGuire then transferred to Sumcad et. WON PNB constructively accepted to assume the obligation 2. McGuire wrote letters to the Bureau of Posts seeking payment for check.07 leaving only P743.287. Director of the Bureau of Posts referred to PNB.Quevedo Camille Umali SUMCAD V PROVINCE OF SAMAR 52 O.43.NEGO . 2. NO. Decision affirmed. dissenting: PNB should not be liable at all. the latter did not pay or did not choose to pay. 7582 (1956) ~cHa~ FACTS SUBJECT: check for P25k. PADILLA.47) -Procedural requirements still asked from McGuire so by the time the check was transferred to Sumcad et al. Province of Samar already withdrew from their PNB account P83. -PNB’s liability is only subsidiary to that of the Province of Samar which is primarily liable thereon. -When PNB requested photostatic copies of the check from the Bureau of Posts and McGuire to present check to provincial treasurer and provincial auditor for certification. it only means that the original check was not presented to it for payment! The act of requesting did not create an obligation on the part of PNB. -James McGuire presented the check to municipal treasurer of Borongan for payment. WON PNB is solidarily liable HELD 1. -Sumcad et al were not able to encash check so they sued Province of Samar and PNB. or before allowing the withdrawal that exhausted said deposit.al. PNB was held solidarily liable with Province of Samar. (Note: McGuire did not present check directly to PNB. 18. it voluntarily assumed the obligation of holding so much of the deposit of the province of Samar as would be sufficient to cover the amount of the check. this appeal. Disposition. YES. cannot be paid because of insufficient funds DRAWER: Province of Samar DRAWEE: PNB.

In banking terminology.700. bullion. although the promise was made before the existence of the bill. a bill was drawn by Cornthwaite and paid to Payson in part of the protested bill of $2. REPUBLIC V PHIL. Disposition TC decision modified.Coolidge held proceeds of the cargo of the Hiram claimed by Cornthwaite. Coolidge wrote to its friend. hence the drafts never became “credits” under the Act. is if shown to the person who afterwards takes the bill on the credit of the letter. ISSUE WON demand drafts create a creditor-debtor relationship between drawee and payee.NEGO . and read to him a part of it. who was to determine whether the draft was to be honored. In fact. hence this appeal. the term bank draft is used interchangeably with a bill of exchange. The court held that cashier’s checks and demand drafts fall under the Act but upon MFR changed its view and excluded drafts. ISSUE WON Coolidge is deemed to have accepted the bill. it is necessary to ascertain the legality of the scrolls. A bill of exchange under the NIL (sec. Since it is admitted in this case that the drafts in question were never presented either for acceptance or payment. (defendant) PAYEE: John Randall INDORSEE: Payson & Co. Williams stated the substance of the letter he had written. it is equivalent to a certified check and its deposit passes to the credit of the holder who then becomes a depositor of that amount. William. and endorsed by him to Payson. with the increase and proceeds thereof. 3969 HELD: NO -A demand draft is not of the same category as a cashier’s check which should fall under the Act. telegraphic transfer payment orders should be escheated to RP (see case for telegraphic orders) 67 . -Cornthwaithe called on William to inquire whether he had satisfied Coolidge respecting the bond. 127) does not operate as an assignment of funds in the hands of the drawee who is not liable on the instrument until he accepts. -Drafts must however be distinguished from cashier’s checks. William replied. describing it in terms not to be mistaken. approving the bond.it was presented to Coolidge. NAT’L BANK L-No. payable to Randall. Corthwaite executed bonds of indembity an executed srolls and drew on them for $2. appellee bank never became a debtor of the payees. Payson also called on him to make the same inquiry.700. Government. and although it is drawn in favor of a person who takes it for a pre-existing debt -Upon a review of several cases. security and other evidence of indebtedness of any kind + interest) in favor of persons not heard from for 10 years or more. to whom he gave the same information and also read the letter he had written. 30. Ed. -2 days later. 4 L. Dec. the court holds that a letter written within a reasonable time before or after the bill of exchange. (plaintiff) . 16106. Coolidge wrote to Corthwaite stating that. Among these banks was the First National City Bank of New York who argued that some of its credits didn’t fall within the purview of the Act. thus falling within the meaning of “credits” in Act. and promising to accept it. since there is no seal to any of the signatures. 3936 which provides that “unclaimed balances” (w/c includes credits or deposits of money. 185 (1817) ~jojo~ FACTS DRAWER: Cornhwaite & Cary DRAWEE: Collidge & Co. the law requires presentment w/in a reasonable time or else the drawer is discharged from liability. which is simply a bill of exchange drawn by the bank on itself. a virtual acceptance binding the person who makes the promise. shall be deposited with the Insular Treasurer to the credit of the Phil. 3 SCRA 851 ~kiyo~ FACTS -RP filed a complaint for escheat of certain unclaimed bank deposit balances against several banks under Act. who refused to accept it. hence liable to Payson HELD: YES -A promise to accept a bill amounts to an acceptance to a person who has taken it on the credit of that promise.Quevedo Camille Umali COOLIDGE V PAYSON 2 Wheat 66. 1961.

Gutierrez. Because of this. Insts. YES. 3). ~athe~ FACTS -Amelia Tan commenced a complaint for damages. NARVASA.Quevedo Camille Umali PAL V CA. -PAL filed an opposition stating that it had already fully paid its obligation to Tan through the deputy sheriff Reyes as evidenced by cash vouchers properly signed and receipted by Sheriff Reyes (PAL issued a check amounting to P30. PAL was negligent. Ratio Technicality cannot be countenanced to defeat the execution of a judgment for execution is the fruit and end of the suit and is very aptly called the life of the law.. The reasoning is logical but is it valid and proper? Logic has its limits in decision making.R. Act 2031 on Negs. Civil Code. there would have been payment in full legal contemplation. Since a negotiable instrument is only a substitute for money and not money. 000. Jr. the office of which is merely to inform the court and the parties. -Tan filed a motion for the issuance of a writ of execution of the judgment. -The sheriff is an adjunct of the court. -Four months later. operate as a discharge of the judgment debt. whether wrongfully or in behalf of the creditor. is not legal tender. PAL filed this instant petition ISSUES 1. Rule 39).00 in the name of Sherriff Reyes and not in the name of Tan). 41. Jan 30. Strictly speaking. Art. a court functionary whose competence involves both discretion and personal liability. Galano. 189. We should not follow rulings to their logical extremes if in doing so we arrive at unjust or absurd results. WON payment of judgment to the implementing officer as directed in the writ of execution constitutes satisfaction of judgment HELD 1. Making the checks payable to the judgment creditor would have prevented the encashment or the taking of undue advantage by the sheriff. the delivery of such an instrument does not. Mere delivery of checks does not discharge the obligation under a judgment. 1249. Tan moved for the issuance of an alias writ of execution stating that the judgment remained unsatisfied. 24188. 1249. b. Tan G." and his "receipt shall be a sufficient discharge for the amount so paid or directed to be credited by the judgment creditor on the execution" (sec. Dissenting Opinion -A sheriff is authorized to receive payments on account of the judgment debt tendered by "a person indebted to the judgment debtor.00. the absence of an executing officer's return will not preclude a judgment from being treated as discharged or being executed through an alias writ of execution as the case may be. Disposition Petition dismissed. of any and all actions taken under the writ of execution. does not.NEGO . operate as payment (Sec. in the case at bar. per se. whether a manager's check or ordinary check. a public officer has no authority to accept anything other than money in payment of an obligation under a judgment being executed. Consequently. The judgment became final and executory there being no further appeal taken. Unless authorized to do so by law or by consent of the obligee. or any person authorized to receive it. or his successor in interest. 1990. -Judge Galano granted Tan’s Motion for Alias Writ of Execution and directed Special Sheriff del Rosario to levy on execution. PAL appealed and the amount of damages was lowered to a total of P30. the acceptance by the sheriff of the petitioner's checks. "Payment shall be made to the person in whose favor the obligation has been constituted. Where such information can be established in some other manner. The issuance of the checks in the name of the sheriff clearly made possible the misappropriation of the funds that were withdrawn. absconded. He. Judge Galano issued its order of execution and it was duly referred to Deputy Sheriff Emilio Z. instead.000. or any person into whose hands the checks may have fallen. No. c. Vested rights were never intended to rest on the requirement of a return. General Rule (under ordinary circumstances): YES Article 1240. Reyes. par. del Rosario. However. Sherriff Reyes encashed the check but failed to surrender the amount to Tan. NCC. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized (Art. The CFI of Manila rendered judgment in favor of Tan and against PAL. Del Rosario served a notice of garnishment on the depository bank of PAL. Civil Code) A check. WON an alias writ of execution be issued without a prior return of the original writ by the implementing officer 2. Being an officer of the court and acting within the scope of his 68 ." Exception (under peculiar circumstances like in this case): NO a. It is argued that if PAL had paid in cash to Sheriff Reyes. by itself. 2. and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. A judgment cannot be rendered nugatory by the unreasonable application of a strict rule of procedure.

Dissenting Opinion -The risk of the sheriff faithfully performing his duty as a public officer is most appropriately borne NOT by the judgment debtor/creditor. nor upon those members of the general public who are compelled to deal with him. Sheriff notified the petitioners' counsel of the deposit of the PN check. His letter contained the ff reservation: This redemption is made solely for the purpose of effecting the execution and delivery to me of the necessary certificate of redemption and the same shall not be taen to mean my accknowledgment of the validity of the said writ of execution and sale. to turn over such legal tender. Pursuant to said judgment. FORTUNADO V CA. NSC filed an urgent motion for redemption within the redemption period. April 21.Bautista sent the sheriff a letter bearing NSC's conformity in which he availed himself of SC's check to redeem the properties. imposed upon him by the nature of his office and the law. Simply because it was made by checks issued in the sheriff's name does not warrant reaching any different conclusion. the RTC rendered judgment ordering Angel Bautista to pay damages to Alfero Fortunado. checks and proceeds of execution sales to the judgment creditor. which was opposed by the petitioners on the ground that the movant did not have the personality to intervene. The sheriff suggested as the 2 lots were sold together that both of them should be redeemed. Prudence dictates that the counsel of Tan should have insisted on their immediate encashment by the Sheriff with the drawee bank in order to promptly get hold of the amount belonging to his client. the auction sale being null and void. 196 SCRA 269. his only remedy is against the officer. Bautista. -Respondent court held that NSC's redemption was absolute and unconditional in view of its refusal to join Bautista in contesting the validity of the sale. -Sheriff issued the certificate of redemption in favor of NSC and Bautista. the Sheriff levied upon 2 parcels of land registered in the name of Bautista. Although the private respondents in the case did not file a redemption case against the petitioners. the redemptioner pays. the NSC issued to the sheriff a PNB check for the properties. Register of Deeds. -If the plaintiff fails to receive it. but by the STATE itself. prayed that the sum covered by the PNB check be delivered to and kept by the clerk of court until such time as all incidents relative to the validity of the auction sale were finally resolved. FELICIANO. Counsel told the check that he was rejecting the check as it was not legal tender. nor shall this be taken to mean as a waiverr on my part of the legal reights and remedies available to me under the circumstances. in an Urgent Motion. -When PAL delivered the checks to the Sheriff. in legal contemplation. The properties were sold to the petitioner as the only bidder in a public auction. -As the motion remained unresolved. the latter was accompanied by the counsel of Tan. Dissenting Opinion -He has underscored the obligation of the sheriff. the sheriff's receipt of the checks in payment of the judgment execution. and National Steel Corporation GR 78556. -If payment had been in cash. Campano. The failure of a sheriff to effect such turnover and his conversion of the funds (or goods) held by him to his own uses. but 1 of the said parcels of land was already sold to the National Steel Corporation (NSC). it has been held and recognized that a payment by check or draft or bank bill or currency which is not legal tender is effective if the officer accepts such payment. -Bautista. HELD: YES.NEGO . no question about its validity or of the authority and duty of the sheriff to accept it in settlement of PAL's judgment obligation would even have arisen. NSC filed with the TC an urgent motion to redeem. the validity of the redemption was dependent on the validity of the certificate of sale. However. both of which I shall continue to contest. Bautista later on wrote to the sheriff that he would no longer effect the redemption because there was nothing to redeem. which still has to be resolved by the TC. If in good faith. and the officer receives before the expiration of the time of redemption. may be deemed. The judgment creditor. do not have the effect of frustrating payment by and consequent discharge of the judgment debtor. PADILLA.Quevedo Camille Umali authorized functions. ISSUE WON there was valid redemption. Cruz. as received by the court itself. Motion for partial reconsideration by petitioner was denied. in circumstances like those of the instant case. 1991 ~giulia~ FACTS -In a civil case. 69 . could be allowed to execute upon the absconding sheriff’s bond. In the US. -NSC then gave notice to the sheriff of its intention to redeem the property it owned.

NEGO - Quevedo
Camille Umali
an ordinary banker's check, the payment is
compel redemption but it is not in itself a payment
regarded as sufficient.
that relieves the redemption bt is not in itself a
The Court does not, by this decision, sanction the use
payment that relieves the redemtioner from his
of check for the payment of obligations over the
liiability t pay the redemption price. While the
objection of the creditor. It is just that a check
private respondents have properly exercised their
may be used for the exercise of the right of
right of redemption, they remain liable for the
redemption, the same being a right and not an
payment of the redemption price.
obligation. The tender of a check is sufficient to
MESINA V IAC [Gonong, Go and Uy]
L-70145; Nov. 13, 1986; 145 sCRA 499; Paras
~ajang~
FACTS
-Jose Go purchased from Associated Bank a
cashier’s check worth P800,000. Accidentally, he
left the check on top of the desk of the bank
manager when he left the bank. The bank
manager entrusted the check for safekeeping to
bank official, Albert Uy, who then had a visitor,
Alexander Lim. Uy had to answer a telephone
call, then he went t the men’s room. When he
returned to the desk, his visitor Lim was already
gone and so was the check. When Jose Go
returned to the bank, the check was nowhere to
be found.
-Uy advised Go to accomplish a sop payment order.
Go also executed an affidavit of loss. Uy also
went to the police station to report the loss,
pointing to Alexander Lim as the one who could
shed light on it.
-Associated Bank received the lost check 2 days after
for clearing, coming from Prudential bank. The
check
was
immediately
dishonored
by
Associated Bank and returned to Prudential with
the words, “Stop Payment.”
The check was
again returned to Associated Bank and for the 2nd
time, it was dishonored.
-Several days later, Associated Bank received a letter
from Atty. Lorenzo Navarro demanding payment
for the check and threatened to sue. He refuses
to reveal who his client is. Unsure with what to do
with the matter, Associated Bank filed for an
Interpleader. The client turned out to be one
named Mesina. He said the check was paid to
him by Alexander Lim in a certain transaction but
refused to elucidate further. Mesina filed a
complaint for damages.
-TC rendered a decision on the interpleader ordering
Associated Bank to replace Jose Go’s check or
pay its cash equivalent. Mesina’s complaint on
the other hand was dismissed. The issue in that
case is who between Mesina and Go are entitled
for the payment of the check. Since this issue

had been resolved in the other case, it has
become moot and academic.
ISSUE:
WON the lower court’s ruling in the interpleader case
should be set aside.
HELD: NO.
Mesina invokes theories on causes and effects of a
cashier’s checks such as 1) it cannot be
countermanded in the hands of a holder in due
course and 2) a cashier’s check is a bill of
exchange drawn by the bank against itself. But
these are general principles which cannot be
aptly applied to the case at bar without
considering other things.
-Mesina failed to substantiate that he is a holder in
due course. He refused to say how and why the
check was passed to him. He therefore had
notice of the defect of his title over the check
from the start.
-Next, the check was bought by Jose Go from the
bank for purposes of transferring his bank from
Associated Bank to a nearby bank, thinking that
carrying a check would be safer than carrying
cash; it was not issued in payment of an
obligation. The check was Jose Go’s property
when it was misplaced or stolen. Bank was
therefore liable to no one else but Jose Go.
-When the payment was stopped, it was not the bank
who did it but Jose Go. The bank could not be
the drawer and drawee for clearly, Jose Go owns
the money it represents and he is therefore the
drawer and drawee in the same manner as if he
has a current account and he issued a check
against it. No one outside Jose Go can be termed
a holder in due course because Go had not
indorsed it in due course.
NOTE: Clear implication from the case is that if
Mesina had been a holder in due course, the
court would have granted recovery.

70

NEGO - Quevedo
Camille Umali
INT’L CORPORATE BANK V GUECO
351 SCRA 516; Kapunan; Feb 1, 2001
FACTS
-Spouses Gueco obtained a loan from International
Corporate Bank (now Union Bank of the
Philippines) to purchase a car – a Nissan Sentra
1600 4DR, 1989 Model. In consideration, the
Spouses executed promissory notes which were
payable in monthly installments and chattel
mortgage over the car to serve as security for the
notes. The Spouses defaulted in payment of
installments. The Bank filed a civil action for
“Sum of Money with Prayer for a Writ of
Replevin” before MTC Pasay City. Dr. Francis
Gueco was served summons and was fetched by
the sheriff and representative of the bank for a
meeting in the bank premises. Desi Tomas, the
Bank’s Assistant Vice President demanded
payment of the amount of P184,000.00 which
represents the unpaid balance for the car loan.
After some negotiations and computation, the
amount was lowered to P154,000.00, However,
as a result of the non-payment of the reduced
amount, the car was detained inside the bank’s
compound. Dr. Gueco went to the bank and
talked with its Administrative Support, Auto
Loans/Credit Card Collection Head, Jefferson
Rivera. The negotiations resulted in the further
reduction of the outstanding loan to P150,000.00.
Dr. Gueco delivered a manager’s check in the
amount of P150,000.00 but the car was not
released because of his refusal to sign the Joint
Motion to Dismiss. It is their contention that Dr.
Gueco need not sign the motion for joint
dismissal considering that they had not yet filed
their Answer. However, the Bank insisted that the
joint motion to dismiss is standard operating
procedure in their bank to effect a compromise
and to preclude future filing of claims,
counterclaims or suits for damages. After several
demand letters and meetings with bank
representatives, the Spouses initiated a civil
action for damages before MTC Quezon City.
-MTC QC: dismissed the complaint for lack of merit.
-RTC QC: MTC decision reversed and held that there
was a meeting of the minds between the parties
as to the reduction of the amount of indebtedness
and the release of the car but said agreement did
not include the signing of the joint motion to
dismiss as a condition sine qua non for the
effectivity of the compromise. Also, the Bank is
ordered to return the car to the Spouses; the
Bank may deposit the Manager’s check – the
proceeds of which have long been under the
control of the issuing bank in favor of the Bank
since its issuance, whereas the funds have long
been paid by the Spouses to secure said
Manager’s Check, over which the Spouses have
no control. Moreover, the Bank is ordered to pay
the Spouses the P50,000.00 as moral damages;

P25,000.00 as exemplary damages, and
P25,000.00 as attorney’s fees, and to pay the
cost of suit.
-CA:
Petition for review on certiorari is hereby
DENIED and the RTC Decision is AFFIRMED in
toto as CA essentially relied on the finality of the
findings of facts by the lower court and on the
latter's finding of the existence of fraud which
constitutes the basis for the award of damages.
ISSUES
1. WON there was no agreement with respect to the
execution of the joint motion to dismiss as a
condition for the compromise agreement
2. WON granting moral and exemplary damages and
attorney’s fees in favor of Sps Gueco is proper
3. WON the Bank must return the subject car to the
Sps. Gueco, without making any provision for the
issuance of the new manager’s/cashier’s check
by the Spouses in favor of the Bank in lieu of the
original cashier’s check that already became
stale
HELD
1. YES
-In support of its claim, The Bank presented the
testimony of Mr. Jefferson Rivera who related
that Dr. Gueco was aware that the signing of the
draft of the Joint Motion to Dismiss was one of
the conditions set by the bank for the acceptance
of the reduced amount of indebtedness and the
release of the car. The Spouses, however,
maintained that no such condition was ever
discussed during said meeting. If it is true that the
signing of the joint motion was a condition sine
qua non for the reduction of the Spouses’
obligation, it is only reasonable and logical to
assume that the joint motion should have been
shown to Dr. Gueco in the said meeting. Why Dr.
Gueco was not given a copy of the joint motion
on the day of the meeting, for his family or legal
counsel to see to be brought signed, together
with the P150,000.00 in manager’s check form to
be submitted on the following day?
-It is more logical to conclude that only an oral
compromise agreement, whereby the original
claim of the bank of P184,985.09 was reduced to
P150,000.00 and that upon payment of which,
plaintiff was informed that the subject motor
vehicle would be released to him’ happened
during that said meeting.
2. NO
-Fraud has been defined as the deliberate intention to
cause damage or prejudice. It is the voluntary
execution of a wrongful act, or a willful omission,
knowing and intending the effects which naturally
and necessarily arise from such act or omission;

71

NEGO - Quevedo
Camille Umali
the fraud referred to in Article 1170 of the Civil
Code is the deliberate and intentional evasion of
the normal fulfillment of obligation. We fail to see
how the act of the bank in requiring the Spouses
to sign the joint motion to dismiss could constitute
as fraud. True, the Bank may have been remiss
in informing Dr. Gueco that the signing of a joint
motion to dismiss is a standard operating
procedure of the bank. However, this can not in
anyway have prejudiced Dr. Gueco. It should,
likewise, be noted that in cases of breach of
contract, moral damages may only be awarded
when the breach was attended by fraud or bad
faith. The law presumes good faith.
3. NO
-The Bank would make us hold that petitioner should
return the car or its value and that the latter,
because of its own negligence, should suffer the
loss occasioned by the fact that the check had
become stale. It is their position that delivery of
the manager’s check produced the effect of
payment and, thus, the Bank was negligent in
opting not to deposit or use said check.
Rudimentary sense of justice and fair play would
not countenance the Spouses’ position.
-A stale check is one which has not been presented
for payment within a reasonable time after its
issue. It is valueless and, therefore, should not be
paid. Under the negotiable instruments law, an
instrument not payable on demand must be
presented for payment on the day it falls due.
When the instrument is payable on demand,
presentment must be made within a reasonable
time after its issue. In the case of a bill of
exchange, presentment is sufficient if made
within a reasonable time after the last negotiation
thereof.
-A check must be presented for payment within a
reasonable time after its issue, and in
determining what is a “reasonable time,” regard is
to be had to the nature of the instrument, the
usage of trade or business with respect to such
instruments, and the facts of the particular case.
The test is whether the payee employed such
diligence as a prudent man exercises in his own
affairs. This is because the nature and theory
behind the use of a check points to its immediate
use and payability. In a case, a check payable on
demand which was long overdue by about two
and a half (2-1/2) years was considered a stale
check. Failure of a payee to encash a check for
more than ten (10) years undoubtedly resulted in
the check becoming stale. Thus, even a delay of
one (1) week[27] or two (2) days, under the

specific circumstances of the cited cases
constituted unreasonable time as a matter of law.
-In the case at bar, however, the check involved is not
an ordinary bill of exchange but a manager’s
check. A manager’s check is one drawn by the
bank’s manager upon the bank itself. It is similar
to a cashier’s check both as to effect and use. A
cashier’s check is a check of the bank’s cashier
on his own or another check. In effect, it is a bill
of exchange drawn by the cashier of a bank upon
the bank itself, and accepted in advance by the
act of its issuance. It is really the bank’s own
check and may be treated as a promissory note
with the bank as a maker. The check becomes
the primary obligation of the bank which issues it
and constitutes its written promise to pay upon
demand. The mere issuance of it is considered
an acceptance thereof. If treated as promissory
note, the drawer would be the maker and in
which case the holder need not prove
presentment for payment or present the bill to the
drawee for acceptance.
-Even assuming that presentment is needed, failure to
present for payment within a reasonable time will
result to the discharge of the drawer only to the
extent of the loss caused by the delay. Failure to
present on time, thus, does not totally wipe out all
liability. In fact, the legal situation amounts to an
acknowledgment of liability in the sum stated in
the check. In this case, the Spouses have not
alleged, much less shown that they or the bank
which issued the manager’s check has suffered
damage or loss caused by the delay or nonpresentment. Definitely, the original obligation to
pay certainly has not been erased.
-It has been held that, if the check had become stale,
it becomes imperative that the circumstances that
caused its non-presentment be determined. In
the case at bar, there is no doubt that the bank
held on the check and refused to encash the
same because of the controversy surrounding the
signing of the joint motion to dismiss. We see no
bad faith or negligence in this position taken by
the Bank.
Disposition Petition for review is given due course.
CA decision affirming RTC decision is SET
ASIDE. Spouses Gueco is ordered to pay the
original obligation amounting to P150,000.00 to
the Bank upon surrender or cancellation of the
manager’s check in the latter’s possession,
afterwhich, the Bank is to return the subject
motor vehicle in good working condition.

72

consisting of the Cashier’s Check and cash. 15. 1980. The certification is equivalent to acceptance. ISSUE WON Seneris can validly refuse acceptance of the payment of the judgment obligation made by New Timber. a new obligation is created. 164 NE 326 ~RPR~ FACTS Plaintiff received from Arthur Wachtel a check drawn on National Park Bank which plaintiff presented to said bank for certification.000 check and P13. since the check had been certified by the drawee bank. and that the bank is under no obligation to certify. Judge issued writ of execution for P63. in that it is not an added obligation but a substitute obligation. the latter becomes the depositor of the drawee bank. 3. 1975 DRAWER: New Pacific Timber -New Pacific failed to comply with his judgment obligation. New Timber deposited with the Clerk of Court the P50. although it may do so. the check operates as an assignment of a part of the funds to the creditors. 101 SCRA 686 ~glaisa~ FACTS SUBJECT: Equitable Bank Cashier’s Check for P50k dated Jan. -The object of certifying a check as regards both parties is to enable holder to use it. When the holder procures the check to be certified. WACHTEL V ROSEN 248 NY 386. ISSUE WON the refusal of the drawee bank to certify the check is equivalent to a dishonor of the check such that holder may sue the drawer as if the check was presented for payment and payment had been refused HELD: NO -The general rule is that a check is of right presentable only for payment. The bank refused to certify the check. 19. Dec. by the certification. 73 . Disposition Judgment affirmed. -Seneris refused to accept check and cash. Certification of the check by the bank is equivalent to payment. Prior to the scheduled sale. The bank in this case may not be prepared to substitute itself with the drawer. Under Section 324. The certification differs in effect from mere acceptance of bills other than checks. on the other hand. HELD: NO -A Cashier’s Check is deemed as cash. the funds represented by the checks are transferred from the credit of the maker to that of the payee or holder.NEGO . -When a bank certifies a check at the request of the holder. with rights and duties of one in such situation. Sheriff proceeded with the auction sale. and for all intents and purposes. The acceptance of a bill of exchange. Moreover. does not discharge the liability. the drawer and all the endorsers are discharged from liability if the check is accepted or certified.Quevedo Camille Umali NEW PACIFIC TIMBER & SUPPLY CO V SENERIS L-41764.130 to which the Sheriff levied upon personal properties and set the auction sale on Jan.130 in cash. as money.

00 in three (3) equal installments of six (6) months each with the first installment and the accrued interest of P24. 1975 > admittedly after the expiration of the stipulated period for payment. and hereby dismisses the complaint -IAC: reversed TC decision as Robes-Francisco has a total available sum of P364. Moreover. Roman Catholic cancelled the contract and considered all previous payments forfeited and the land as ipso facto reconveyed. TC declares the subject contract cancelled and RobesFrancisco’s downpayment of P23.00.930. the last day of the grace period and demanded the execution of a deed of absolute sale over the land in question and after which it would pay its account in full. 1975 > Robes-Francisco protested alleged refusal of the latter to accept tender of payment purportedly made by the former on August 5.930. The contract likewise provides for cancellation. and reconveyance of the land in question in case Robes-Francisco Realty and Development would fail to complete payment within the said period. at least. -August 22.00 in savings deposit on or before August 5. and reconveyance would be implemented. 1975.Quevedo Camille Umali ROMAN CATHOLIC BISHOP OF MALOLOS. otherwise. Atty.00 plus 12% interest per annum to be paid within four (4) years from execution of the contract. and although the latter had a money-market placement of P300. a sum not enough to pay the outstanding account of P124. forfeiture of previous payments. Robes-Francisco wrote Roman Catholic a formal request that her company be allowed to pay the principal amount of P100.00 to be paid immediately upon approval of the said request. WON there is legal obligation on the part of Roman Catholic to execute a deed of absolute sale in favor of the Robes-Francisco before the latter has actually paid the complete consideration of the sale where the contract between and executed by the parties stipulates 3. 1971 > the subject contract over the land. its xerox copy. Bulacan. the same was to mature only after the expiration of the 5-day grace period. issued and registered in the name of the Roman Catholic Bishop of Malolos which it sold to the Robes-Francisco Realty and Dev’t for P123.840.655 sq. requesting to be furnished with a copy of the subject contract and the supporting documents.00. 1975 > Roman Catholic denied the request for an extension of the grace period. forfeiture. Sarmiento. Francisco. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former's obligation and demanding that the latter accept the same.00 and the balance of P100.00. 1975. -August 27. Roman Catholic denied that Robes-Francisco had made any tender of payment whatsoever within the grace period.000.000. a 20. -TC: Failure of Robes-Francisco to present in court the certified personal check allegedly tendered as payment or. parish priest of San Jose Del Monte. that is. 72110. otherwise. 1975. in Bulacan.930. Nov 16. Thus. but granted the latter a grace period of five (5) days from the receipt of the denial to pay the total balance of P124.840. in question was executed stipulating for a downpayment of P23.000. 1975 > Robes-Francisco wrote Roman Catholic requesting an extension of 30 days from said date to fully settle its account. -July 29. judicial action would be resorted to. the provisions of the contract regarding cancellation.00 forfeited in favor of Roman Catholic.000.R.00 and their disposal on or before August 4. And Robes-Francisco was found to have insufficient funds to fulfill the entire obligation considering that its president.00. -March 12. In view of this alleged breach of contract. 1975 to answer for the obligation of the Roman Catholic. 1975 > Roman Catholic refused to execute the deed of absolute sale due to its failure to pay its full obligation. ISSUES 1.00). 1990 ~owen~ FACTS -July 7. WON an offer of a check is a valid tender of payment of an obligation under a contract which stipulates that the consideration of the sale is in Philippine Currency HELD 1. or even bank records thereof is fatal.000. -July 17. 1975 > Roman Catholic formally denied the said request of Robes-Francisco. only had a savings account deposit of P64.NEGO .m. WON finding that Robes-Francisco had sufficient available funds on or before the grace period for the payment of its obligation is proof that it did tender of payment for its said obligation within said period 2. INC V IAC [Robes-Francisco Realty and Dev’t Corp] G. -August 7. NO -A finding that Robes-Francisco had sufficient available funds on or before the grace period for the payment of its obligation does not constitute proof of tender of payment by the latter for its obligation within the said period. -August 4. It was not correct for the trial court to conclude that Robes-Francisco had only about P64.000. 1973 > Robes-Francisco addressed a letter to Father Vasquez. No.840. on or before July 7. tender of payment cannot be presumed by a mere inference from surrounding 74 .

"A proof that an act could have been done is no proof that it was actually done. A check. At most. sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. Thereafter.Quevedo Camille Umali circumstances. 3. or. as seller of the the oil property -the memorandum of agreement of the parties provided that the 5000 would be given in escrow in evidence of good faith that Mitchell would pay the remainder of the purchase price. It has been said that an acceptor admits everything essential to the validity of the bill. thus it should not be liable to pay since Mitchell itself would not be liable to pay. The first paragraph of Art. even set up the defense of want of consideration between the parties. by itself. IAC decision set aside and annulled. the subject contract clearly provides that the full payment by the private respondent is an a priori condition for the execution of the said documents by Roman Catholic. Mitchell made sure with Allegheny that it had enough funds. 471 (1925) ~maia~ FACTS SUBJECT: a check for $5000 DRAWER: Mitchell. operate as payment. ready. where the tender of payment by RobesFrancisco was not valid for failure to comply with the requisite payment in legal tender or currency stipulated within the grace period and as such. and willing. and if it is not possible to deliver such currency. and on this ground he cannot.” Allegheny also insisted that. Tender of payment presupposes not only that the obligor is able. -Mitchell did not pay the purchase price. allowing a reasonable time. is not legal tender. whether a manager's check or ordinary check. -Hence. the delivery of such an instrument does not. In the event of Mitchell’s failure to pay. RTC decision reinstated.NEGO . the VENDOR shall cause the execution of a Deed of Absolute Sale in favor of the VENDEE. Buillet then sent a telegram to Allegheny inquiring whether it would honor Mitchell’s check. was validly refused receipt by Roman Catholic. and therefore. and the bank replied through wire that it would. but the latter refused to pay because Mitchell had given a “stop payment order. and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. “That upon complete payment of the agreed consideration by the herein VENDEE. 1249CC provides that "the payment of debts in money shall be made in the currency stipulated. BULLIET V ALLEGHENY TRUST CO 284 Pa. Allegheny invoked the defense available to Mitchell) ISSUE WON Allegheny is liable for the amount under the circumstances HELD: YES -the reply of Allegheny that it would honor the check amounted to certification of the bank. NO -Although admittedly the documents for the deed of absolute sale had not been prepared. who is thereafter a depositor to that amount -the obligation of the acceptor is to pay the instrument according to the tenor of his acceptance. for example. then in the currency which is legal tender in the Philippines. 561.” -What Robes-Francisco should have done if it was indeed desirous of complying with its obligations would have been to pay Roman Catholic within the grace period and obtain a receipt of such payment duly issued by the latter. Robes-Francisco could have demanded from Roman Catholic the execution of the necessary documents. NO -A certified personal check is not legal tender nor the currency stipulated. Buillet then claimed from Allegheny. But whether or not the obligor avails himself of such funds to settle his outstanding account remains to be proven by independent and credible evidence. as buyer of an oil property DRAWEE: Allegheny Trust Co PAYEE: Bulliet. In case Roman Catholic refused. in the act of performing his obligation. the amount of the check passes to the credit of the holder. -PAL v. (in effect. 131 Atl. but more so. -the acceptor cannot defend on the ground of want of consideration between the drawer and the payee Disposition Judgment affirmed (Allegheny liable to pay Buillet) 75 . Disposition Petition for review on certiorari granted. putting itself in the position of Mitchell. cannot constitute valid tender of payment. the subsequent consignation did not operate to discharge the former from its obligation to the latter. thus making it liable -the effect of the bank’s certifying a check at the request of the holder is to create a new obligation on the part of the bank to that holder. the 5000 would be forfeited in favor of Buillet. there was no transfer of title as to the property being conveyed as there was failure of consideration. CA > Since a negotiable instrument is only a substitute for money and not money. Robes-Francisco could have had always resorted to judicial action for the legit enforcement of its right." 2. Ab posse ad actu non vale illatio.

under the circumstances and conditions making him a bona fide holder for value. Mack Reasoning: A check may be certified by the bank at the request of the payee or the holder. was justified in paying the indorsee Mr. thus respondent paid the check upon subsequent presentment. Sutter upon presentation and demand as against the notice of the maker of the check to stop payment. Respondent told Mr. ISSUE WON Security Trust Co. Eq.NEGO . 1922 Mr. Sutter the payee upon proper presentation of the check by her notwithstanding the service of notice to stop payment by her husband the maker and the disclosure by him to the bank of the conditions upon which the check was obtained by Mrs. He refused to indemnify respondent. Sutters. when the check is certified at the request of the drawer or maker before it reaches the hands f the payee therein named. The check was delivered to his wife in consideration of a certain agreement between them concerning their separation. 644 A. it is necessary to inquire whether the bank by reason of its certification would have been justified in making payment to Mrs.R. the check was presented to Security Trust Co for payment which was refused on ground of “payment stopped”. Sutter demanded the payment to him of his alleged balance of $1034. Mr. Sutter drew a check in favor of his wife on March 25 1922 in the amount of $1000 for which he procured the certification of drawee Security Trust Co. PAYEE: Mrs. -In this case since Mr.Quevedo Camille Umali SUTTER V SECURITY TRUST CO 96 N. without notice of defects therein then the instrument is beyond recall by the maker as against the payee. Sutter’s violation of their agreement. Mack the $1000 value of the check HELD: YES. Mrs Sutter on the same day went to her brother Mr. He may only do so (recall) if the payee is not a bona fide holder for value but has obtained the check by fraud perpetrated by him upon the maker. 435. Sutter requested that payment be stopped upon the check because of Mrs. The wife violated said agreement after the delivery of the check to her.J. There is nothing in the case that indicate that Mrs Sutter procured the check by any fraud perpetrated by her to her husband. Sutter INDORSEE: Mr. 76 . its obligation under the facts was likewise to make the payment to the indorsee holder Mr. -On March 27. -March 30.41 w/c includes the $1000 drawn w/c was refused except as to balance of $34. Sutter that the check was in the hands of an innocent third person for value and that unless he indemnified respondent the check would be paid. -The Bank was justified and legally called upon to make payment to Mrs. Sutter DRAWEE: Security Trust Co. Mack is not a holder in due course.L. 938 (1924) ~da~ FACTS SUBJECT: Checks DRAWER: Mr. through the Federal Reserve Bank of Philadelphia. 35 A. When such a certification is made and there is delivery to the payee. Mack and indorsed the check to him and he deposited it in his bank in Philadelphia. Mack -Mr.

The appellant Picornell contended that it should have been taken into account that he merely acted as an agent of Hyndman. sold the tobacco. took possession of the tobacco. Tavera & Ventura sent a letter to PNB informing the latter that it absolutely refuse to pay draft 2 for P39. that brought the shipment.708. Through these communications. PNB presented the bill to Hyndman. together with the invoice and bill of lading of the tobacco. and in consideration whereof he drew the bill in favor of the central office of said bank in Manila and against the said Hyndman. in turn. Tavera & Ventura proceeded to the examination of the tobacco. 790. having. consigned to Hyndman. and amended by an order of February 18th next. and had it appraised on the 12th of the same month. plaintiff. therefore. Tavera & Ventura company.83. owing to noncompliance of the contract by the drawer. was received by him from the branch of the plaintiff bank in Cebu. 708. the value of the tobacco. which the trial court ordered deducted from the value of the bill of exchange. owner of the ship Don Ildefonso. that the condition "D/P" attached to the transaction was not modified. which was shipped in the boat Don Ildefonso.82. following instruction Hyndman.72.235 quintals of Leaf Tobacco Barili. wherefore Hyndman. the firm of Tambunting. Tavera & Ventura. Hyndman. Picornell requested PNB to extend the time for payment of the bill for P39. referring to 1.) J.83 against Messrs.529.529. against the firm of Hyndman. Tavera & Ventura to send for the goods.NEGO . that he had the right to complain because the bank consented to the said company taking possession of the tobacco before the payment of the bill. 1922. 716 (1922) ~bry_sj~ FACTS SUBJECT: Bill Of Exchange DRAWER: Bartolome Picornell DRAWEE: Firm Of Hyndman." 2 May 1920. there was a certain portion which was of no use and was damaged. that the bank was not authorized to sell the tobacco. -This total sum which the defendants are required to pay represents the value of a bill of exchange drawn by Bartolome Picornell in favor of the National Bank. which was done by the company without the knowledge of PNB which retained and always had in its possession the invoice and bill of lading of the tobacco. on 27 February 1920. Tavera & Ventura at Manila. 1920.529. Hyndman. 1921. who accepted it. The sum of P6. as required by section 89 of the Negotiable Instruments Law. Tavera & Ventura. Tavera And Ventura PAYEE: PNB -Bartolome Picornell.708. and the defendant Bartolome Picornell. by (Sgd. PNB protested the bill.72 with interest at the rte of 9 per centum per annum from May 3.871. to pay said plaintiff the sum of P10. that the bank held the tobacco as a deposit. Due May 2d. Tavera & Ventura company at Manila. Pardo de Tavera. together with his commission of 1 real per quintal. obtaining from the sale P6.739. which was deposited in their warehouses. said sale not being allowed either by law or by the circumstances.83. Picornell obtained from the branch of the National Bank in Cebu the sum of P39. member of the firm.82 from such amounts to be paid by the defendants. Tavera & Ventura.735 bales of tobacco. deducting the sum of P6. now dissolved. drawn a bill of exchange. Tavera & Ventura. bought in Cebu 1. Tavera & Ventura in all these transactions. and about September 1921. the consignee of the tobacco. The tobacco having arrived at Manila. requested Hyndman. Picornell learned that Hyndman. and wrote and cabled to Picornell. The bank brought the action for the recovery of the value of the bill of exchange. 46 Phil. the Court of First Instance of Manila sentenced the defendants to pay solidarily to the plaintiff bank the sum of P28. its only successor being the defendant Joaquin Pardo de Tavera. -On 3 March 1920. as alleged by the said company. together with his commission.Quevedo Camille Umali PNB V PICORNELL Romualdez. all as aforesaid. that he should not have been ordered to pay the value of the bill without proof that he was notified of its dishonor. This instrument was delivered to the branch of the Philippine National Bank (PNB) in Cebu. more correspondence was exchanged between the company and Picornell. the price of which. its value having been fixed at P28. Tavera & Ventura had in their possession the tobacco. until it presented them as evidence at the trial -Hyndman. PNB granted the request of Picornell. -On the 4th of the same month.11 with interest at 9 per centum per annum. notifying him that of the tobacco received. and costs.790. Tavera & Ventura of Manila for 30 days. Hyndman. Tavera & Ventura reaccepted the bill in the terms: "Accepted for thirty days. arrived and the bill was not paid. -In a decision rendered January 9. that the tobacco was not of inferior quality. ISSUES 77 . -Joaquin Pardo de Tavera alleged that the bill in question was without consideration and that judgment should not have been rendered against him. -In view of the question raised by the said company as to the quality of the aforesaid tobacco. is the proceeds received by the bank from the sale of a part of a certain quantity of tobacco shipped by Picornell at Cebu to the Hyndman.

) -The fact that Picornell was a commission agent of Hyndman. Bartolome Picornell. or its successors. 106. he warranted. 105. The payee holds a different relation. Negotiable Instruments Law. Negotiable Instruments Law). accepted the bill and is primarily liable for the value of the negotiable instrument. and if the acceptance be without consideration. Negotiable Instruments Law. the bank had the right of recourse. against the drawer. The bank was a holder in due course.Quevedo Camille Umali 1.) -Concerning the notice to Picornell of the dishonor of the bill. does not concern the plaintiff bank. is secondarily liable. the Hyndman. (Sec. and upon which money has been advanced by the plaintiff. in a legal sense a remote party. (Sec. and as it was not paid. Pardo de Tavera. 78 . he cannot exempt himself from responsibility by the fact of his having been a mere agent of this company. not having been rebutted. Such partial want of consideration. the presumption. Upon the non-payment of the bill by the drawee-acceptor. Tavera & Ventura company. and was such for value full and complete. that the latter received it (secs. does not necessarily make him an agent of the company in its obligations arising from the drawing of the bill by him. the question as to the consideration between the drawer and the acceptor cannot be inquired into. that it would be accepted upon proper presentment and paid in due course. His acts in negotiating the bill constitute a different contract from that made by his having purchased the tobacco on behalf of Hyndman. in the purchase of the tobacco. or at least. he became liable to the payment of its value to the holder thereof. However. -As to Bartolome Picornell. The payee or holder gives value to the drawer. The Hyndman. does not exist with respect to the bank which paid to Picornell the full value of said bill of exchange. which is the plaintiff bank. NO. if it was. 2. HELD 1. -The question whether or not the tobacco was worth the value of the bill. Tavera & Ventura company cannot escape liability in view of section 28 of the Negotiable Instruments Law. . But the drawer and acceptor are the immediate parties to the consideration. J. WON the bank is subject to the defense of partial want of consideration. Tavera & Ventura. now conclusive. 84. Hence. no question has been raised about this aspect of the responsibility of the defendants. he is in the position of a bona fide indorsee. Furthermore. the drawer cannot recover of the acceptor. and also to the drawer himself. and if he is ignorant of the equities between the drawer and the acceptor. 61. BECAUSE NOTHING TO THIS EFFECT WAS INDICATED OR ADDED TO HIS SIGNATURE ON SIGNING THE BILL. as drawer of the bill." 2. which it exercised. therefore. while the drawer. he is a stranger to the transaction between the drawer and the acceptor. Negotiable Instruments Law. that a copy of such protest was sent by mail in good season addressed to Bartolome Picornell. NO. . Tavera & Ventura. and is. that the draft was accepted for the accommodation of the drawer. it appears from Exhibit C. . 20. WON Picornell is not liable on the instrument on the theory that he is merely a commissioned agent. it is no defense to a suit against the acceptor of a draft which has been discounted. contradicted. “The drawee by acceptance becomes liable to the payee or his indorsee. (Sec. In a suit by him against the acceptor.NEGO .) -The drawee. which is the protest for the non-payment thereof.

NEGO - Quevedo
Camille Umali
BANCO ATLANTICO V AUDITOR GENERAL
G.R. No. L-33549; Fernandez; Jan 31,1978
~mel~
FACTS
SUBJECT: Philippine Embassy check dated Oct 31,
1968 for US$10,109.10
DRAWER: Luis M. Gonzales, its ambassador and by
said Virginia Boncan as Finance Officer
DRAWEE: Philippine National Bank branch in New
York, U.S.A
PAYEE: Azucena Pace
INDORSEE: Banco Atlantico, a commercial Bank
doing business in Madrid
-Virginia Boncan, then the Finance Officer of the
Philippine Embassy in Madrid, Spain, negotiated
with Banco Atlantico a Philippine Embassy check
signed by Luis M. Gonzales, its ambassador and
by said Virginia Boncan as Finance Officer, dated
October 31, 1968 in the sum of US$10,109.10
payable to Azucena Pace and drawn against the
PNB branch in New York, U.S.A.
-The check was endorsed by Azucena Pace and
Virginia Bonca. The petitioner, without clearing
the check with the drawn bank in New York,
U.S.A., paid the full amount of US$10,109.10 to
Virginia Boncan; that on November 2, 1968,
Virginia Boncan negotiated by endorsement with
the petitioner another embassy check signed by
Luis M. Gonzales as ambassador and by her as
finance officer in the sum of US$35,000.75 dated
November 2, 1968 payable to Virginia Boncan
and drawn against the Philippine National Bank
branch in New York, U.S.A.; that the petitioner
paid the full amount of the check to Virginia
Boncan without clearing said check with the
drawn bank, that on November 5, 1968, Virginia
Boncan negotiated by endorsement with
petitioner another embassy check signed by
Ambassador Luis M. Gonzales and by Finance
Officer Virginia Boncan in the sum of
US$90,000.00 dated November 5, 1968 payable
to Virginia Boncan and drawn against the
Philippine National Bank in New York, U.S.A.;
that the petitioner paid the full amount of the
aforementioned check of US$90,000.00 to
Virginia Boncan without clearing said check with
the drawn bank;
-Upon presentment for acceptance and payment of
the aforementioned checks by Banco Atlantico
through its collecting bank in New York, U.S.A. to
the drawn bank, the Philippine National Bank
branch in U.S.A., said drawee bank dishonored
the checks by non-acceptance allegedly on the
ground that the drawer had ordered payments to
be stopped; that upon receipt of the notice of the
dishonor, the collecting bank of the petitioner in
New York, U.S.A. sent individual notices of
protest with respect to the checks in question to
the Philippine Embassy in Madrid, Spain and to
Virginia Boncan as endorser payee that Virginia
Boncan and the Philippine Embassy in Madrid,

Spain refused to pay the petitioner the amounts
of the aforementioned checks.
-Petitioner Banco Atlantico filed corresponding money
claim with the Auditor General. AUDITOR GENERAL:
denied the claim of the petitioner for the amounts of
the three checks in question, stating that the Embassy
never maintained any checking account with Banco
Atlantico at any time in the past. Only the individual
staff members of the Embassy, including Miss Virginia
Boncan, in their personal and private capacities,
maintained accounts with said bank. It also stated that
while the aforementioned checks of the Embassy may
have appeared valid, payment to Miss Boncan in her
capacity as endorser and payee of the checks without
clearing them first with the drawee bank is definitely
not in accordance with normal or ordinary banking
practice, especially so in this case where the drawee
bank was a foreign bank, and the amounts involved
were quite large. The normal procedure would have
been for the Banco Atlantico to clear the three cheeks
concerned with the drawee bank before paying Miss
Boncan. The lower court have gathered enough proof
that Miss Boncan had very special relations with the
employees and chiefs of the claimant bank's foreign
department. This personal relationship that existed
between Miss Boncan and said employees and
officers was one thing and ordinary banking
transactions were something else. Because of this
special relationship, the bank took a risk and
sacrificed normal banking procedures by cashing the
aforementioned checks without prior clearance from
the drawee bank.
-Further proof of the special relationship between
claimant bank and Miss Boncan was the leniency of
the bank towards her when it accepted for deposit to
Miss Boncan's dollar account an Embassy check for
US$75.00 payable to Mr. Antonio P. Villamor without
his indorsement. Such leniency on the part of the
bank could even lead to the suspicion that there was
collusion between the bank and Miss Boncan A
photocopy of this check is enclose for ease of
reference. In the particular case of the check for
US$90,000.00 we can demonstrate that claimant
bank likewise has no ewe at all. Section 61 of the
Negotiable instruments Law can only be availed of by
holders in due course and Banco Atlantico cannot be
considered as one
ISSUE
WON the Philippine Embassy in Madrid is liable, as
drawer of the 3 checks in question
HELD: NO
Ratio: It is apparent that the said three (3) checks
were fraudulently altered by Virginia Boncan as
to their amounts and, therefore, wholly
inoperative. No right of payment thereof against

79

NEGO - Quevedo
Camille Umali
any party thereto could have been acquired by
the petitioner.
Reasoning: The petitioner paid the amounts of the
three (3) checks in question to Virginia Boncan
without previously clearing the said checks with the
drawee bank, Philippine National Bank, New York.
This is contrary to normal or ordinary banking practice
specially so where the drawee bank is a foreign bank
and the amounts involved were large. The drawer of
the aforementioned checks was not even a client of
the petitioner. There is a showing that Virginia Boncan
enjoyed special treatment from the employees and
chiefs of the petitioner's foreign department. It was
probably because of this special relationship that the
petitioner, in of the elementary principle that should
attend banking transactions, cashed the three (3)
checks in question without prior clearances from the
drawee bank.
-SEC. 52. What constitutes a holder in due course A
holder in due course is a holder who has taken the
instrument under the following conditions:
a. That it is complete and regular on its face;
b. That he became the holder of it before it was
overdue, and without notice that it has 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 infirmity in the instrument or defect in the title
of the person negotiating it.
-All four conditions enumerated under this section
must concur before a holder can be considered as a
holder in due course. The absence or failure to

comply with any of the conditions set forth under this
section will make one's title to the instrument
defective.
-The check for US$90,000.00 was a demand note.
When Miss Boncan the payee of this check,
negotiated the same by depositing it in her account, at
the game time informing the bank in writing (copy of
her letter is enclosed for ease of reference) that it be
not presented for collection until a later date, Banco
Atlantico through its agent teller or cashier should
have been put on guard that there was something
wrong with the check. The fact that the amount
involved was quite big and it was the payee herself
who made the request that the same not be
presented for collection until a fixed date in the future
was proof of a glaring infirmity or defect in the
instrument. It loudly proclaims, "Take me at your risk."
The interest of the payee was the immediate
punishment of the check of which she was the
beneficiary and not the deferment of the presentment
for collection of the same to the drawee bank. This
being the case, Banco Atlantico was not a holder in
due course as defined by Sec. 52 of NIL, because it
was obvious that it had knowledge of the infirmity or
defect of the cheek. The fact that the check was
honored by claimant bank was proof not only of their
gross negligence but a further manifestation of the
special treatment they were according Miss Boncan.
Disposition Decision of Auditor General denying
claim of petitioner for payment of the three
checks is affirmed

McCORNACK V CENTARL STATE BANK
211 N.W. 542, 53 A.L.R. 1297
~eva~
FACTS
DRAWER: Peter McCornack
DRAWEE: Central State Bank
PAYEE: C.R. Kutsman (fictitious person)
-(July 1920) Halverson gained the confidence of
McCornack and represented to him that he had a
client who wished to borrow money to be secured
by mortgage on land, and so McCornack
consented to make the loan. Halverson delivered
to McCornack a note purporting to be signed by
CR Kutsman and secured by a mortgage.
McCornack signed a check for $1,005.50 which
he gave to Halverson. Halverson indorsed the
name Kutsman and his own name on the check
and deposited it in his account. The check was
paid on presentation to Central State Bank and
the amount charged to the account of
McCornack.
-(1924) It was discovered that the note and the
mortgage were forged instruments and no
Kutsman in fact existed. Halverson, by like

fraudulent means, obtained other checks from
McCornack. McCornack sued to recover, as for a
conversion, the amount paid by the bank and
charged against its (McCornack) account. Court
decided in favor of McCornack. Bank now
appeals.
-Defenses of drawee bank:
1. check paid to person to whom McCornack intended
payment to be made
2. the bank was not guilty of negligence
3. McCornack was negligent in making the check in
that he failed to ascertain that the payee was a
fictitious person
4. that by accepting without objection the statement of
their bank account with the check in question
cancelled and charged against it, there was
account stated, and the plaintiffs were thereby
estopped to claim that the check was improperly
paid
5. by failing to notify the bank within 6 months after
receiving such statement of the alleged

80

NEGO - Quevedo
Camille Umali
irregularity in the payment of the check, the claim
was barred by the statute of limitations
6. McCornacks were guilty of negligence in not
sooner notifying the bank of the alleged error in
the payment of the check, for the reason that
they knew, or should have known, that Halverson
was receiving the proceeds of checks turned over
to him under similar circumstances, and so
received the proceeds of the check in question,
thereby causing loss to the bank.
ISSUE
WON Central State Bank (drawee) is liable.
HELD: YES.
a. A check payable to the order of a fictitious person
with the knowledge of the drawer is payable to
bearer. But where the fact that it is payable to a
fictitious person is unknown to the drawer, that
bank upon which it is drawn, or paying it, is in no
different position than where it pays a check
payable to a real party upon a forged instrument.
McCornack did not know that the payee was
fictitious; the check was not, therefore, payable to
bearer, and the bank cannot escape liability on
that ground.
b. Where an impostor represents himself to be
another, whether the person whom he so
impersonates be a real or fictitious person, and
procures a check payable to the order of such
person, the bank is protected in paying the check
to the impostor, because it made payment to the
person to whom the drawer intended it should be
made, no matter what name he assumed. But
where one represents himself to be the agent of
a ficititious person and fraudulently procures the
delivery to himself of a check payable to the
order of such fictitious person as payee, and
secures the payment of the check to himself by
indorsing the name of the fictitious payee upon it,
in the absence of estoppel or negligence on the
part of the drawer, the loss must be borne by the
drawee and not by the drawer.
c. The bank in paying the check was bound to know
at its own risk that the indorsements by which the
holder of the check claimed title were genuine. Its
liability for payment not in accordance with the
direction of the drawer did not depend upon
negligence, but upon a violation of its implied
contract with its depositor. The question WON
the bank was negligent is immaterial upon the

naked and primary question of its liability for
having paid a check upon a forged indorsement.
Here, the check was paid by the bank without
inquiry as to the indorsement of Kutsman.
d. McCornack was not negligent. There is no showing
that anything had come to his knowledge
respecting Halverson to put him upon inquiry as
to his honesty. Moreover, McCornack’s failure to
ascertain that the payee of his check was a
fictitious person did not induce or contribute to
the payment of the check by the bank. The
drawer of the check, who, through failure to
discover the fraud that is being practiced upon
him, makes a check payable to the order of a
fictitious payee in ignorance of that fact, stands in
the same position with reference to the bank
upon which it is drawn as where his check is
payable to the order of a real person. His
negligence in so drawing the check is immaterial
unless directly and proximately affects the
conduct of the bank in paying the check.
e. On Sec.9521 of Code 1924 (Sec.61 of NIL):
This provision would seem to be, not for the benefit of
the drawee, nor designed to relieve the drawee of
the duty to pay out the drawer’s money in
accordance with his order, but for the protection
of holders of the paper in case the drawee
refuses to pay. It provides, not only that the
drawer admits the existence of the payee and
his capacity to indorse, but that he engages
that upon dishonor and the necessary
proceedings thereon he will pay the amount
to the holder or any subsequent indorser who
may be compelled to pay it. There is here no
engagement to pay the amount to a drawee
who has honored the check.
-When the payee is a fictitious person and this is
unknown to the drawer the statute does not have
the effect to bind the drawer by an indorsement
of the name of the payee by one to whom he did
not intend payment to be made.
-If the drawee demanded a genuine indorsement, as it
was its duty to do before honoring the check,
since there could be no such thing in the case of
a fictitious payee, the check would not have been
honored. In such case, an innocent holder, upon
taking proper steps, would have been protected
by Sec.9521. The purpose of that section was to
protect the innocent holder of dishonored papernot the drawee who paid it in violation of duty.

81

It punishes the non-payment of the check & not the act of issuing it. Dec. it contravenes the equal protection clause 4.NEGO . influence. ISSUE WON BP 22 is constitutional HELD: YES. it impairs freedom of contract 3. 315 2(d) by removing the requirement of drawer’s knowledge of insufficiency of funds and by giving the drawer 3 days from receipt of notice of dishonor to deposit the amount necessary to cover the check. History of provisions covering bouncing checks: a. qualification. In this case. the maker/drawer makes arrangements for payment of check by bank/pays the holder the amount of the check. It is a veiled device to coerce 82 . Drawer on the other hand did not derive any material benefit in return for check’s issuance. agency or business or by means of similar deceit. -Arguments against the constitutionality of BP 22: 1. but it should not exceed P200k or both fine & imprisonment at court’s discretion. RPC Art. c. Yap. it is an undue delegation of legislative and executive powers 5. property. Anyone who has sufficient funds in or credit with bank when he makes/draws & issues a check but fails to keep sufficient funds or maintain a credit to cover full amount if presented w/in 90 days from date appearing on check resulting to the bank dishonoring the check. which check is subsequently dishonored by the drawee bank for insufficiency of funds/credit or would have been dishonored for the same reason had not the drawer. upon presentment. Defendants in these cases moved to quash the informations filed against them on ground that BP 22 is unconstitutional. Prima facie proof of dishonor: introduction as evidence of unpaid and dishonored check with drawee bank’s refusal to pay stamped/written thereon or attached thereto. Essential element: knowledge of the insufficiency of funds. Sabio that the amended provision still did not cover pre-existing obligations. payee already parted with his money/property before the check was issued thus he’s not defrauded by means of a prior or simultaneous deceit. Penal Code of Spain Art. the interim Batasan violated the constitutional provision prohibiting amendments rd to a bill on 3 reading BACKGROUND ON BP 22: BP 22 punishes a. 18. or whether issued in payment of a pre-existing obligation or given in mutual or simultaneous exchange for something of value. WON it violates the constitutional prohibition on nonimprisonment for debt -NO. RA 4885 amended Art. Phil Legislature amended PC Art. credit. Anyone who makes/draws & issues any check on account or for value. BP 22 is clear and broad enough to cover all kinds of checks whether present or postdated. 1926. e. giving the reason thereof. d. That it is really a bad debt law rather than a bad check law. b. w/o any valid reason. ordered the bank to stop payment.Quevedo Camille Umali LOZANO V MARTINEZ 146 SCRA 323. However. 2) maliciously signs check differently from his authentic signature as registered at the bank in order that the latter would dishonor it. during its passage. knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of said check. Aiming to cover checks issued to pay pre-existing obligations. Prima facie presumption of knowledge: when check is refused by bank due to insufficient funds/credit when presented within 90 days from date of the check. But SC ruled in People vs. Failure to do so would be a prima facie evidence of deceit. 335 penalizing anyone who: 1) issues a check in payment of a debt or for other valuable consideration knowing at the time of its issuance that he does not have sufficient funds in the bank to cover its amount. which statistically constituted the greater bulk of dishonored checks. Presumption will not arise if within 5 days from receipt of notice of dishonor. this provision did not cover checks issued to pay pre-existing obligations since the deceit that causes the defrauding must be prior to or simultaneous with the commission of the fraud. 1986 ~jat~ FACTS -Petitions arose from cases prosecuted under Batas Pambansa Blg. b. 2(d) punishes anyone who postdates a check or issues a check in payment of an obligation knowing that at the time he had no/insufficient funds in the bank without informing the payee of such circumstances. BP 22 was enacted to cover checks issued to pay pre-existing debts.22 (BP 22) or the Bouncing Checks Law. Those who assail the statute claim that the felony is consummated only upon the dishonor/non-payment of check. Penalty: imprisonment of not less than 30 days nor more than 1 yr or a fine of not less than the amt of the check nor more than double said amount. 315. 3) issues a postdated check & at the date set for its payment doesn’t have sufficient deposit to cover the same. Par. in full. 335 penalized act of defrauding another by falsely pretending to possess any power. Purpose of the statute: stop/curb practice of issuing worthless checks due to the injury it causes to the public interests. it offends the constitutional provision on nonimprisonment for debt 2.

NEGO . -BP 22 punishes making & issuing a worthless check and not the non-payment of an obligation. It would be absurd to punish the person swindled. a check is not a contract. the nation’s economy & eventually the welfare of the society & the public interest. What cannot be delegated is the power to legislate. the power to define the offense sought to be punished and to prescribe the penalty. but an offense against public order. It punishes the act not as an offense against property. which means. banking system. WON BP 22 constitutes undue/improper delegation of legislative/executive powers since completion of act is dependent on the will of the payee. we can see that the State has a legitimate purpose in protecting checks. It’s punished because of its deleterious effects on the public interest. 9(2) of the 1973 Consti w/c prohibits the introduction of the rd amendments to a bill during the 3 reading. It does not intend to coerce a debtor to pay his debt. Central Bank reports show that 1/3 of the entire money supply of the country consists of peso demand deposits (funds against w/c commercial papers like checks are drawn). A check is a convenient substitute for currency in commercial & financial transactions due to the assurance that it will be paid upon presentation. Any practice tending to destroy the confidence in checks should be deterred since it would injure trade & commerce. -NO.Quevedo Camille Umali payment of a debt under the threat of penal sanction. Nor is the power to enforce the statute delegated to the offended party. It is within the police power of the state (making & issuing of worthless checks is a public nuisance to be abated by the imposition of penal sanctions). as applied to the present case. Classification per se is valid as long as it is not unreasonable/arbitrary. WON BP 22 violates Art. WON BP 22 denies equal protection of the laws or is discriminatory since it penalizes the drawer of the check but not the payee. it can proscribe certain acts deemed pernicious & inimical to public welfare. It’s sufficient that there be a reasonable nexus between the means & end. Amendment in question was made during the 2nd reading. No sense in talking about swindled’s indispensable participation in the commission of the crime. Although there was confusion among Batasan Members regarding this matter. -NO. -NO. -NO. -Although the legislature cannot penalize a person for non-payment of a debt ex-contractu. It’s a commercial instrument used as a substitute for money forming part of the banking system & thus not entirely free from state’s regulatory power. Court cannot question its wisdom. a Special Committee investigated the matter & found that there were actually no amendments introduced during the 3rd reading. VII Sec. Considering these facts and that there are approximately 50-80 million pesos worth of bouncing checks per day. It would be mistaken charity of judgment to place this felony alongside a felony committed by an honest man unable to pay his debts. The Constitution only protects the freedom to enter into LAWFUL contracts & not those which contravene public policy. or the power to make laws. 83 . Besides. WON BP 22 impairs freedom of contract. The power to define the crime and prescribe the penalty therefore has not been in any manner delegated to the payee.

hence. 215 SCRA 79 ~kooky~ FACTS SUBJECT: memorandum check dated Feb 9. Lim alias Mariano Lim DRAWEE: Philipppine Trust Company PAYEE: Fatima Cortez Sasaki -K. Lim was charged with violation of BP 22. signifying that the maker or drawer engages to pay the bona fide holder absolutely." It must therefore fall within the ambit of BP 22 which does not distinguish but merely provides that "[a]ny person who makes or draws and issues any check …” -A memorandum check. has the same effect as an ordinary check. In the business community a PN has less impact and persuadability than a check. -Failing in his argument that BP 22 is unconstitutional. It is still drawn on a bank and should be distinguished from PN. for the mere act of issuing a worthless check is malum prohibitum.000 which was dishonored by drawee for insufficiency of funds.R. and if passed to the third person. -a memorandum check comes within Sec 185 NIL which defines a check as "a bill of exchange drawn on a bank payable on demand. and although may not be intended to be presented. Lim did not pay within 5 days. To require that the agreement surrounding the issuance of check be first looked into and thereafter exempt such issuance from the punitive provision of BP 22 on the basis of such agreement or understanding would frustrate the very purpose for which the law was enacted --to stem the proliferation of unfunded checks.T. with BP 22. Lim now argues that the memorandum check he issued is in the nature of a PN.NEGO . No. Oct 22. Disposition Petition granted. 75954.Quevedo Camille Umali PEOPLE V NITAFAN G. 84 . 1985 DRAWER: K. 1992. will be valid in his hands like any other check.T. without any condition concerning its presentment. is generally accepted by the bank. outside the purview of the statute. RTC ordered to proceed. with the word "memorandum". upon presentment. for the check he issued to Sasaki for P143. "memo" or "mem" written across its face. -a memorandum check may carry with it the understanding that it is not to be presented at the bank but will be redeemed by the maker when the loan falls due. However. Despite notice of dishonor. this may no longer prevail to exempt it from penal sanction imposed by the law. Such a check is an evidence of debt against the drawer. ISSUE WON a memorandum check is within the coverage of BP 22 HELD: YES -A memorandum check is in the form of an ordinary check. It does not matter for whatever purpose it was issued.

it was held that “[t]o determine the reason for which checks are issued. LPI would print sample calendars. had a history of unremitted collections. (LPI). drawer. Feb 2.07.” -LPI through counsel notified Wong of the dishonor. -the lowers courts found that although initially intended to be used as guarantee for the purchase orders of customers. the presumption of knowledge of lack of 2 funds under Sec2 of BP 22 should not apply to him -However. However. After printing the calendars. 2 85 . Wong issued 6 postdated checks totaling P18. Quisumbing. and (2) by having sufficient funds in or credit with the drawee bank at the time of issue but failing to keep sufficient funds therein or credit with said bank to cover the full amount of the check when presented to the drawee bank within a period of ninety (90) days. the drawer’s knowledge is presumed from the dishonor. LPI refused to accept the checks as guarantees. (2) The knowledge of the maker. LPI deposited the checks with RCBC. This argument has no legal basis. 2001 ~maia~ FACTS -Wong was an agent of Limtong Press. People 351 SCRA 100. BP 22 creates a presumption juris tantum that the 2nd element prima facie exists when the 1st and 3rd elements of the offense are present. Although these customers had already paid their respective orders. Besides. Thereafter. shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon. for what BP 22 punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating to its issuance. Instead of depositing the checks. However. the agents would come around to collect the payments.00. -In December 1985. Wong told LPI not to deposit the checks and promised to replace them within 30 days. LPI would ship the calendars directly to the customers.07 difference. Thus. drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank. Wong claimed LPI did not return the said checks to him. thus his customers were required to issue postdated checks before LPI would accept their purchase orders. -RTC: guilty. but to guarantee the orders of his customers. On June 5. -Wong contends that the 1st element does not exist because the checks were not issued to apply for account or for value since the checks were issued as guarantee and the obligations they were supposed to guarantee were already paid. Wong avers that since LPI deposited the checks 157 days after the Dec 30. and bring about havoc in trade and in banking communities. Court of Appeals. Inc. These checks were initially intended to guarantee the calendar orders of customers who failed to issue post-dated checks. without any valid cause. Wong failed to make arrangements for payment within 5 banking days. The mere act of issuing a worthless check is malum prohibitum.077. -Before the maturity of the checks.NEGO . and (3) The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer. however. will greatly erode the faith the public reposes in the stability and commercial value of checks as currency substitutes. when presented within ninety (90) days from the date of the check. the parties agreed to apply the checks to the payment of Wong’s unremitted collections for 1984 amounting to P18. or the terms and conditions for their issuance. Wong. a manufacturer of calendars. So what the law punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating to its issuance. 1986. 1985 maturity date. The checks were returned for the reason “account closed. LPI should have returned the checks to him. in Llamado v. then give them to agents to present to customers. -The elements of BP 22 under the first situation are: (1) The making. or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. Instead. -As to the 2nd element. Since this involves a state of mind difficult Evidence of knowledge of insufficient funds. an essential element of the offense is “knowledge” on the part of the drawer of the insufficiency of his funds in or credit with the bank. -The making.Quevedo Camille Umali WONG V COURT OF APPEALS. CA: guilty ISSUE WON Wong should be convicted considering that the checks were issued as guaranty and the accounts that said checks supposedly guaranteed have already been paid by the customers HELD: YES -Wong contends that LPI is not a "holder for value" considering that the checks were deposited by LPI after the customers already paid their orders. Thus. the checks were eventually used to settle the remaining obligations of Wong with LPI. or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment. drawing and issuance of any check to apply for account or for value. The agents would get the purchase orders of customers and forward them to LPI. Wong reneged on his promise. LPI waived the P52. Wong was charged with violation of BP 22 (bouncing checks law) -According to Wong.025. he issued the checks not as payment for any obligation.” -2 ways of violating BP 22: (1) by making or drawing and issuing a check to apply on account or for value knowing at the time of issue that the check is not sufficiently funded. ordered the bank to stop payment.

but the act of making and issuing a check that is dishonored upon presentment for payment. LPI deposited the checks 157 days after the date of the check.000 from the proceeds of the replacements checks. LIM V PEOPLE G. it is presumed. -that ROBERT had already received the total amount of P4. but such knowledge could still be proven by direct or circumstantial evidence.NEGO . After the checks were dishonored. ALBERTO filed a motion for reconsideration which was denied. 22 punishes the issuance of a bouncing check. which was accommodated by him. There is sufficient evidence that Wong had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks. -ALBERTO alleged that sometime in 1989. Wong was duly notified of such fact but failed to make arrangements for full payment within 5 banking days thereof. What is primordial is that such issued checks were 86 . Inc. -BP Blg. Blg.P. that the same was issued for valuable consideration. sixty-four (64) Metrobank checks. Davide. including the twelve checks which were the subject of the present case. Upon his failure to do so. Sarangani Commercial. each of the 12 checks were deposited by ROBERT at the Roosevelt Branch of the United Coconut Planters Bank. It is not the non-payment of an obligation which the law punishes. LPI was constrained to deposit the said checks.ROBERT thru his lawyer sent a demand letter dated 29 December 1992 to ALBERTO. -Trial court rendered a decision finding ALBERTO guilty of violation of B. It is not an element of the offense nor does it discharge Wong from his duty to maintain sufficient funds in the account -Under Section 186 of NIL: “a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. -ALBERTO affixed his signature . the clear import of the law is to establish a prima facie presumption of knowledge of such insufficiency of funds under the ff conditions: (1) presentment within 90 days from date of the check. the twelve checks subject of the present case have no valuable consideration.021. as replacements. ALBERTO issued to private complainant Robert Lu for purpose of rediscounting. Upon respective dates of maturity. Oct 26. -Upon issuance of the said checks. in the absence of evidence to the contrary. LPI did not deposit the checks because of the reassurance of Wong that he would issue new checks. ISSUE WON ALBERTO is not guilty of violating BP22 (as the subject checks lack valuable consideration) HELD: NO.R. the statute itself creates a prima facie presumption Nowhere in said provision does the law require a maker to maintain funds in his bank account for only 90 days. Rather. including the 12 checks subject of the informations filed in these cases.Quevedo Camille Umali to establish. No. Here." -ROBERT informed ALBERTO of the dishonor and demanded payment but despite receipt of notice of such dishonor ALBERTO failed pay. ALBERTO caused the filing of the 12 informations subject of the instant case. which amount is more than the total obligation of Sarangani. (hereafter Sarangani Inc. ALBERTO received the demand letter on 9 January 1993. Hence said checks are not stale. 22 in each of the twelve cases. ALBERTO issued more than three hundred checks. Court of Appeals affirmed in toto the decision of the trial court.” By current banking practice. -It is the contention of ALBERTO that with the full payment of the accommodated obligation. 143231.) issued to ROBERT seven checks as payment for its obligation to the latter in the amount of P1. For failure to settle his account within the seven days grace period provided in the demand letter.000. Only the presumption of knowledge of insufficiency of funds was lost.600. as guarantor. Inc. and (2) dishonor of check and failure of maker to make arrangements for payment in full within 5 days after notice -That the check must be deposited within 90 days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. When the said seven checks bounced. The purpose for which it was issued and the terms and conditions relating to its issuance are immaterial. a check becomes stale after more than 6 months or 180 days. which were all dishonored by the drawee bank for the reason "Account Closed. 2001 ~da~ FACTS SUBJECT: Checks DRAWER: ALBERTO LIM DRAWEE: Metrobank PAYEE: ROBERT LU -Sometime in May 1992.

-The seven(7) checks issued by Sarangani. if not for a consideration other than to answer for an obligation which was already paid.000. 22 to be (1) the making. without the petitioner heeding the demand for him to redeem his checks which bounced. ALBERTO insists that as a guarantor. the 330 checks submitted by the defense did not prove that the twelve checks were not issued for valuable consideration. But the same checks remained in the possession of the complainant who asked for the satisfaction of the obligations involved when said checks became due. On the contrary. The twelve (12) checks including the other fifty-two (52) checks were all dated November 1992.Even the corresponding amount of the checks negates said conclusion. drawing and issuance of any check to apply for account or for value. His defense rests solely on the payment of the obligation by Sarangani.. the date of the last check of the 330 checks. whereas the 330 checks which were submitted to prove the fact of payment were all encashed before the issuance of the said checks.NEGO .P. Hence.P. Inc. Thus.000.600. drawer. without any valid cause.000 to the value of the more than three hundred checks. if full payment was made as early as July 22. Inc. hence the same cannot be a replacement of the bad checks which were dishonored as far back as three years ago. 87 . is only P1. which was allegedly accommodated by him. why would ALBERTO issue the twelve (12) checks and the fifty-two (52) checks. -Moreover. If we add the P7. then the twelve checks already lack valuable consideration. (2) the knowledge of the maker. representing the obligations of Sarangani. Inc. which ALBERTO alleged to have been issued also in payment of the said obligation then the total amount of all the replacement checks will be P111.000. as claimed by ALBERTO.455. This is because the mere act of issuing a worthless check is malum prohibitum -The law enumerates the elements of B. were all dated and dishonored in September 1989. and (3) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer. it supported the version of the prosecution that the checks were issued for rediscounting and not as replacements for the bad checks of Sarangani.476. including its interests. a required element under B. 22. -Further. records show that the twelve(12) checks and the other fifty-two (52) checks were issued sometime May 1992 and all postdated 1992. or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment. Inc. ordered the bank to stop payment. 1991. he merely issued the twelve checks to replace the bad checks that were previously issued by Sarangani. -The issuance of the twelve checks and its subsequent dishonor were admitted by ALBERTO.. The total amount of the seven (7) checks. Blg. Blg. and considering that the total amount of the checks encashed by ROBERT have exceeded the amount of the bad checks including the interest. the petitioner should have redeemed or taken the checks back in the ordinary course of business. Inc. while the sum total of the twelve (12) checks and the remaining fifty-two checks is P7. if indeed it were true as claimed by ALBERTO that the indebtedness covered by the checks sued upon has been paid..Quevedo Camille Umali worthless and the fact of its worthlessness is known to appellant at the time of their issuance.455.

00. drawing & issuance of any check to apply to account or for value.400. i. or on the presentment for payment. It is a policy that can easily be eroded if one has yet to determine the reason for which checks are issued. however. It must be presupposed then that the issuer receives a notice of dishonor and that. -Santos. he would have failed to pay the amount of the check or to make arrangement for its payment. Sometime in 1988.Quevedo Camille Umali MERIZ V PEOPLE Vitug. by the depositary bank. the statute itself creates a prima facie presumption of knowledge on the insufficiency of funds or credit coincidental with the attendance of the two other elements. within five days from receipt thereof. (2) the knowledge of the maker. before an appropriate application of the legislative enactment can be made. ordered the bank to stop payment. drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment. hence. and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer. The checks. NOTE: Court deleted prison sentence." -The Court has since said that a "check issued as an evidence of debt. The act effectively declares the offense to be one of malum prohibitum. the drawee bank gives it the usual course whether issued in payment of an obligation or just as a guaranty of an obligation. or the terms and conditions for their issuance. has the same effect like any other check" and must thus be held to be "within the contemplation of BP 22. Santos deposited the checks with her bank. without any valid cause.200 against Meriz 88 . would have it that there was an absolute lack of consideration for the subject checks which were issued only as a condition for the grant of loan in her favor and that the requisite element of notice was not complied with. without so much regard as to the criminal intent of the issuer. its primordial intention being to instead ensure the stability and commercial value of checks as being virtual substitutes for currency." Once a check is presented for payment. Santos filed a complaint against Meriz.NEGO . warning her that criminal action will be instituted unless the obligation was paid in cash. with the notation "Insufficient Funds" stamped on the dorsal portion of each check. sent a telegram to petitioner. which resulted in the filing of several informations charging her with violation of the Bouncing Checks Law. -The element of "knowledge" involves a state of mind that obviously would be difficult to establish. The gravamen of the offense under BP 22 is the act of making or issuing a worthless check or a check that is dishonored upon presentment for payment." During the course of her business undertakings. MERIZ however was not able to do so due to difficulties encountered in her business.e. although not intended for encashment. Ratio The cause or reason for the issuance of the check is inconsequential in determining criminal culpability under BP 22 -The essential elements of the offense penalized under BP 22 are (1) making. imposed a fine of P94. through her counsel.. Trial ensured and Meriz was convicted. -Petitioner Meriz in the instant appeal. BP 22 does not appear to concern itself with what might actually be envisioned by the parties. The payment could thus be a complete defense that would lie regardless of the strength of the evidence offered by the prosecution. The only valid query then is whether the law has been breached. 368 SCRA 524 (2001) ~bry_sj~ FACTS SUBJECT: 4 checks DRAWER/ISSUER: Celia Meriz DRAWEE: Pilipinas Bank PAYEE: Amelia SANTOS -Petitioner MERIZ was engaged in the business of manufacturing garments for export using the name and style of "Hi-Marc Needlecraft. were later returned. ISSUE WON absolute lack of consideration for the issuance of checks is a valid defense in a prosecution for violation of BP 22 HELD: NO. of the check might be rebutted by payment of the value of the check either by the drawer or by the drawee bank within five banking days from notice of the dishonor given to the drawer. petitioner issued in favor of Santos four Pilipinas Bank Checks in the aggregate amount of P188. by the mere act of issuing a bad check. -The prima facie presumption that the drawer has knowledge of the insufficiency of funds or credit at the time of the issuance. she obtained a number of loans from Amelia Santos (Santos) and Summit Financing Corporation.

Accused-petitioner was charged cases. 22 “applies even in cases which affirmed the RTC decision finding accusedwhere dishonored checks are issued merely in the petitioner guilty of six counts of violation of BP 22. the April 22.916. is the act of making and insufficency of funds. Blg. or the repeatedly notified the complainant of the Bouncing Check’s Law. thus.00 from October. the drawer does not have sufficient funds in funds.P. cases pending before Judge Garcia. various pieces contemplation are issued in payment of an obligation of jewelry worth P700. Kapunan. the accused failed to make good or respondent were in agreement that these six checks pay for the value of the six (6) checks which had were issued in settlement of some of the pending 29 been dishonored. During trial. We find nothing -Accused-petitioner claims that the six checks subject of in the records that would show that these six checks the present cases were issued as mere guarantees were issued as mere guarantees. was evidence that complainant was told by the drawer that he did not have sufficient funds in the ISSUE bank. the accused issued to the private allegation that the checks were merely issued as complainant several checks. Court of HELD: NO Appeals. 22. 1991 check and checks also bounced. As guarantee for the payment of -The records of the case belie accused-petitioner’s the jewelries. Dec 7. check and not the purpose for which such check was -In the case under consideration. Court of Appeals relied upon by complainant that she would not be able to maintain accused-petitioner.250. 1985 to or merely to guarantee the said obligation. In both cases. 1991 check. with thirty-five counts for violation of B. Accused-petitioner’s contention that the claim that private respondent knew that she had checks were merely issued to guarantee payment of difficulty maintaining sufficient funds in or credit with her obligation to private complainant is not the bank. In Magno. She -Based on the records. People of -This is a petition for review of the CA decision of CA the Philippines. never hid WON the fact that the subject checks were not intended the fact that he did not have funds with which to put as payments but as mere guarantees of petitioner’s up the warranty deposit and openly intimidated the obligations exempt her from liability same to complainant. When these six replacement good. more particularly. counsels for herein accused-petitioner and private -Despite demand. she issued twenty guarantees. we note that in Idos. they became the subject of six the May 2. is: “IF” or insufficiency of with the 29 cases before Judge Garcia. 2001 ~kitik~ FACTS persuasive. or credit with the bank for payment and the check petitioner’s acquittal was not based on complainant’s was subsequently dishonored upon presentment. therefore. knowledge that petitioner did not have sufficient What the law punishes is the issuance of a worthless funds in the bank but on some other grounds. It also serves to emphasize that in Idos. the complainant issuing a check with the knowledge that at the time was duly notified by the drawer of the insufficiency of of issue.Quevedo Camille Umali LAGMAN V PEOPLE 371 SCRA 679.P. Although the ruling in Magno was reiterated in the case of Idos v. accused-petitioner accused-petitioner’s posture that the six checks maintains that she cannot be held liable because subject of this appeal were mere guarantees. she expressly and repeatedly informed private -The case of Magno v. and private complainant was checks “were issued as replacements of the sufficiently warned that these checks were not to be previous checks” which bounced upon presentment. All the checks bounced either for accused-petitioner to private respondent in the sala insufficiency of funds or for the reason that the of Judge Domingo Garcia of the Pasig RTC. the six checks were was found guilty for issuing six of the last set of issued in partial settlement of the 29 B. As 157 in settlement of the 29 cases pending before the replacement for said checks she issued eight said court which arose from the issuance of 29 checks. The reason for the Trampe.P. Later on. As held in the case of Que v. Court of Appeals. purchased from the any distinction as to whether the checks within its private complainant Delia Almarines.” December. overwhelming evidence contradicting Magno vs. Relying on the case of There is. does not find application to the sufficient funds in or credit with the drawee banks for present case. 89 . B. The drawer. Blg. The other six (6) other criminal cases which were filed before Judge checks were dishonored. only two became bounced checks. form of a deposit or guarantee and does not make -Accused Gloria Elena Lagman. 1985. deposited or encashed.00. Accused-petitioner in replacement of several bounced checks she had herself acknowledged that these eight (8) postdated previously issued. Branch account of the accused-drawer had been closed. First. 22 checks issued. these six cases were consolidated dishonor of the checks. accused-petitioner issued nor the terms or conditions relating to its failed to adduce any evidence to substantiate her issuance. from the very beginning. we held that there was no the payment of the checks due to financial violation of the bouncing checks law because there constraints. Evidence shows that the six checks nine (29) postdated checks in the total sum of subject of the present appeal were issued by herein P591. Of the eight (8) checks. petitioner -The act sought to be prevented by BP 22. funds.NEGO . again.

He also alleged that note served as collateral security for the $6. drawer or acceptor is deemed to be an indorser unless there is a clear indication through the words of being bound in another capacity. along with an allegation that there was no meeting of the minds and that there was no authorization to deliver the note as collateral security. and for value. Said note matured on Feb 1932. Craig and Woodruff exchanged their own negotiable notes (each for $10. -Craig indorsed the note from Woodruff but it was uncertain as to whether or not it was for collateral security for Craig’s indebtedness to Adolph Ramish and was thus treated as an issue in the case. INC.000.C. is allowed to prevail only where the action is on the note to enforce its obligations.E. -The evidence is conflicting with regard to Woodruff’s argument that the note was delivered for inspection and investigation purposes. 1934 ~aida rose~ FACTS SUBJECT: Question on proper indorsement of P/N to Adolph Ramish MAKER: Woodruff PAYEE: Craig INDORSEE: Adolph Ramish. among other things that the instrument. Disposition Judgment reversed. Plaintiff appealed. void. and where it has been made without ratification. -Adolph Ramish sued Woodruff. -The defendant. Inc. and does not affect or extend to suits by an innocent indorsee for value and HDC against the indorser on his contract of indorsement. -The contract of indorsement is a substantive contract. would destroy their commercial value. -Adolph Ramish held the promissory note of Craig for $13. Majority view: These are the better reasoned arguments and are in accordance with the policy of free circulation of commercial paper as a substitute for money. -The tendency of the law is to resolve all doubtful cases towards holding the same to be a commercial indorsement in due course. aside from doing so as maker. HELD: YES.M. (2d) 360. -According to Woodruff. ISSUE WON the indorsee. Crafton INDORSEE/HDC: Wachovia Bank and Trust Co. saying that the note was delivered for inspection and investigation only. at the time of the indorsement. it guarantees to a HDC. WACHIOVA BANK & TRUST CO V CRAFTON 181 N. the indorser. Carver PAYEE/INDORSER: J. void. a HDC can recover from a P/N which was for an amount won in a gambling transaction hence. along with taking cognizance of all the equities between the original parties. -The law which renders these contracts void was enacted for the suppression of gambling but it would tend rather to encourage the vice if a successful gambler could procure the value of such a note on his indorsement. 90 . Woodruff admitted the note’s execution but denied title of Adolph Ramish. (2d) 190. 28 P. 107 S. V WOODRUFF 2 Cal. -Lower court ruled in favor of defendant. alleging that the P/N was for an amount won in a gambling transaction hence. separable and independent of the instrument on which it appears. The guaranty is considered a separate contract.W. -Commercial instruments take the place of money and requiring every assignee to inquire into circumstances bearing upon the original execution. -Statutes applicable render this and all notes and contracts in like cases void and no action thereon can be sustained. the indorsement by Craig did not amount to a commercial indorsement but was merely a guaranty which does not operate as a transfer cutting off the defenses of the maker. ISSUE WON the note had been indorsed in accordance with the law (as an ordinary commercial endorsement) HELD: YES -There are two views with regard to this matter: Minority view: A guaranty placed on a bill or note does not constitute a commercial negotiation. is a valid and subsisting obligation.000) dated February 19 and due in 90 days.Quevedo Camille Umali ADOLPH RAMISH.NEGO . denied liability. The principle however. -A person placing his signature in the instrument. Disposition Judgment Reversed.820 balance of the note and that Adolph Ramish was not a holder in due course because it did not take the note by negotiation under proper indorsement and thus was subject to the available defenses. 316 (1921) ~lora~ FACTS SUBJECT: promissory note MAKER: J. 404.

New trial ordered. he filed suit in court. Value received.NEGO . Thereafter and before maturity. it must be held that in indorsing the note the defendant warranted its validity. 520. Unpaid. J. ISSUE WON an indorser may raise the defense that note is void for usury HELD: NO. and prior to its delivery to Horowitz. NIL): Every indorser who indorses w/o qualification warrants to all subsequent holders in due course: xxx (b) that the instrument is. -Horowitz presented the note for payment.” -Under the language of the statute. Disposition Judgment reversed.Quevedo Camille Umali HOROWITZ V WOLLOWITZ 59 Misc. valid and subsisting. 972 (1908) ~marge~ FACTS SUBJECT: promissory note prepared by Barnet Cohen on 18 Dec 1906: worded as follows: “Six months and five days date I promise to pay the order of myself five hundred dollars at 16-1/2 Carmine St.” -Said note was delivered to Jacob Jormack. and W] set up the defense that the note was tainted with usury in its inception. at the time of his indorsement. and was therefore null and void. any more than for forgery or any other cause. because defendants herein were sued in their capacity. Louis Wollowitz indorsed it w/ intent to charge himself as first indorser. US law (Sec 66. Jormack indorsed the note to Horowitz for value. -Defendants [C. 110 NY Supp. -It is not necessary to pass upon the question of the availability to the maker of the defense of usury as against HIDCs. as applied by the decisions in Packard v Windholz and Lennon v Grauer. and he cannot be heard now to assert that it is void for usury. -Sec116. -At the time of making said note. but as indorsers of the note in question. separate and distinct from that evidenced by the note. not as makers. -It is an established rule that the obligation of an indorser is a new and independent contract. 91 .

NEGO . -The first instalment was not demanded of the makers. but they signed at the note’s inception. Foss. and therefore liable. which requires prior demand and due notice. is deemed to be an indorser. According to him. 116 Atl. and therefore free from liability because of want of demand and notice. drawer. he is liable to the payee and to all subsequent parties. Disposition Smith and Foss are not liable as makers. and these irregular indorsers were made liable to the payee Ingalls and to all other subsequent parties. 182. and Almeda E. This interpretation however would revert the law back to the time before the NIL was enacted.Quevedo Camille Umali INGALLS V MARSTON 121 Me. Such right is not available to irregular indorsers. PAYEE: Ingalls -Herbert L. unless he clearly indicates by appropriate words his intention to be bound in some other capacity. Defendants’ Comment: Smith and Foss were merely indorsers. 216 (1922) ~anton~ FACTS PROMISSORS: Herbert L. or acceptor. These necessarily imply the inherent elements of demand and notice of dishonor. regular endorsers are entitled to have demand made to the maker first. but on the back—meaning “other than makers”—and they did not indicate by any words. Marston. so far as necessity for demand and notice of non-payment was concerned. appropriate or otherwise. Marston signed the note on its face. Plaintiff’s Claim: All four were original promissors. NIL: A person placing his signature upon an instrument otherwise than as maker.” In the present case the note was made payable to the order of a third person. and before the delivery to the payee. -Sec. Almeda E. -Howard W. Foss placed their signatures on the back of the note at its inception. not on the face (as makers). that one who signed his name on the back of a note at its inception was a joint or joint and several makers with who signed on the face. Marston INDORSERS: Howard W. with due notice of dishonour given to him (indorser). and notice of dishonor was not given o Smith and Foss. HELD: NO Ratio Nature of liability must be expressly stated in instances where the instrument was signed other than on its face. 63. 92 . place thereon his signature in blank before delivery he is liable as an indorser. Ingalls (plaintiff). ISSUE WON Smith and Foss became original promissors when they signed the instrument on its back. and therefore this section applies. in accordance with the following rules: (1) If the instrument is payable to the order of a third person. hence the issue whether they are mere indorsers or copromissors. NIL: Where a person not otherwise a party to an instrument. 64. the law was firmly settled in states by judicial decisions. -However Ingalls seeks to differentiate between regular and irregular indorsers. any intention to be bound in some other capacity. Herbert and Almeda (at maturity). Smith and Walter H. -Smith and Foss placed their signatures. Reasoning -Before the enactment of the NIL. but only as indorsers. But their liability is that of “indorsers” as the section unequivocally provides. The passage of the NIL abrogated this rule of commercial law. Smith and Walter H. -Sec.

WON defendants are bound on the note 2. to be held by the bank as collateral. In such circumstances.Quevedo Camille Umali WEST RUSTLAND TRUST CO V HOUSTON 104 Vt. 25 provides that “xxx an antecedent or preexisting debt constitutes value xxx” Sec. the defendants are bound as the face of the note discloses. after which he signed it. has been abolished. An accommodation party is now primarily & absolutely liable on the instrument to a holder for value. also signed by Buck as maker & indorsed by Houston. Reasoning Under the Negotiable Instruments Act. the previous rule to the effect that. as he thought that the indebtedness of the Buck Lumber Company to the bank was larger than the bank examiner would like. but is liable as if he were financially interested in the transaction. Reasoning Transactions with banks are affected with an unusual public interest.NEGO . YES Ratio Under the Uniform Act. WON the liability of the defendants is primary & absolute HELD 1. 80 ALR 664 (1932) ~jonas~ FACTS -The note in suit is a promissory note. It follows that the liability of the defendants on the note is primary & absolute and that there was no error in the direction of a verdict against them. & that he wanted a new note. An accommodation party cannot claim the benefit of being treated as a surety as against a holder for value. as makers. Houston testified that he spoke with Buck about signing the note in suit. & that the note would be held only until the examiner had examined the books & then returned to either of the defendants. an employee of the Buck Lumber Company. 2. -The receiver of the plaintiff bank (it appears the bank was subsequently placed in receivership) brought an action to recover from the defendants. ISSUE/S 1. it was an illegal transaction. 93 . he had a talk with F. The trial was by jury.L. a verdict was directed for plaintiff. If so. 158 Atl. This note is a renewal of another note. xxx he is deemed a holder for value to the extent of his lien xxx”. Disposition Judgment affirmed. the result was to effect a scheme to deceive the bank examiner. YES Ratio If the note was given to plaintiff bank merely as a semblance of collateral security. Sec. & he was told the purpose of the note. one who takes a negotiable note as collateral to secure a preexisting debt takes for value. -NOTE: the bank examiner is sent by the commissioner of banking & insurance to oversee & inspect banks in order to protect the public interest. Jones explained that he was afraid not to have some extra collateral to show the examiner. It is of public importance that all dealings with banks be conducted with integrity & honesty. and at the close of the evidence. Jones told him that the bank examiner was expected to visit the bank very soon. treasurer of the plaintiff bank. 104. signed by defendant Buck. Jones. -Buck testified that before the note was signed. if a holder for value knew a party had signed for accommodation only he must be treated as a surety. 27 provides that “xxx where the holder has a lien on the instrument. as MAKER then INDORSED by defendant Houston. The defendants excepted to the direction of the verdict & to the judgment thereon. which was delivered to plaintiff bank as collateral security for the indebtedness of the Buck Lumber Company to it. and it is against public policy to permit defendants to rely upon it as a defense. even though no independent consideration is given. 69.

who is in possession of it. upon the maturity of the note. 94 . received anything for the use of his name. 2. Such is lacking in the case. may.H. ISSUES 1. Sellner. “By W. as in the case. It is a mere gratuity. NO. -Goodman instituted the action to recover from Gaull as indorser the amount in the promissory note. Defendant argued that he did not receive or the whole of the amount of the debt. makes him liable. unless by some words he indicates his intention to be bound by another capacity. So long as he is one of the joint and several debtors which he is. but to those who signed with him placing himself with respect to the creditor in the same position and with the same liability as the said signers. pay the debt. 1914 “Six months after date. even though he knows that sai signer is merely an accommodation party (Sec. or has not. Reasoning -The circumstances will show if Gaull was indeed an accommodation party. Clarke.Quevedo Camille Umali GOODMAN V GAUL 244 Mass 528.xxx (Sgd.” And as such holder. whether one of the signers has. 3. that the instrument was not presented to him for payment. Who is the “holder” is defined in section 191 of the said law thus: “Holder” means the payee or indorsee of a bill or note.000 Manila. or the bearer thereof.” If. 29 above cited). (Internal Revenue Stamp) “Geo C. Gaull agreed and signed the note.12. It is not dependent on whether or not he has received any or part of his debt. The note reads: “Php. finally that he is an accommodation party thus failure to negotiate means lack of liability. NO. 29 of the aforesaid Act. WON he is liable. rather than that of an accommodation party. which as has been stated. The latter then saw Gaull at his place of business and asked him if he will indorse a note for Bennie Bean. it is immaterial. It appears Bean did not ask for the defendant’s indorsement. 3. “John Maye. he has the right to demand payment of the debt from the signer of the note. for value received…. HELD 1. -It is clear from the record that defendant signed in accommodation of the plaintiff. also. In reality the legal situation of the defendant in this case may properly be regarded as that of a joint surety. The defendant as a joint surety. assuming the subject to be such. As to the plaintiff. means “without receiving payment for lending out his name. It should be noted that the phrase “witout receiving value therefor. ISSUE WON Gaull is liable HELD: NO Ratio An accommodation party is liable to all subsequent parties except to the party whom he accommodated. 29 for he had paid the money to the signers at the time the note was executed and delivered to him.NEGO . demand the collateral security and dispose of it to his benefit. -The plaintiff asks to be allowed to amend and to proceed on the indorsement as a written guaranty. WON he is merely an accommodation party. or that defendant’s signature was agreed upon to be affixed for the instrument to become complete.) W. is not the case. he lent his name not to the creditor. Goodman INDORSERS: Goodman. so far as the creditor is concerned. but there is no proof whatsoever that this was done. 2. By putting his signature to the note. The party for whose accommodation a not is given cannot enforce it against the accommodator. he is the “holder for value” under the phrase of said Sec. Gaull -Bean signed the not and handed it to Goodman. July 1. YES. a sume of money was received by virtue of the note.H. His signature being on the note.” -The note matured but was not paid. 384 (1921) ~ice~ FACTS SUBJECT: Promissory Note MAKER: Sellner and two others PAYEE: Clark -Sellner and two others signed a note in favor of Clark. But the contract itseld fails to show any conract of guaranty.” as used in Sec. Clarke. CLARK V SELLNER 42 Phil. or authorized the plaintiff to obtain it. There is no requirement for presentment. 138 NE 910 (1923) ~monch~ FACTS SUBJECT: Promissory note MAKER: Bennie Bean PAYEE: D. Disposition: Judgment reversed. he is presumed to be a indorser. WON presentment is necessary. his attorney.

2 WON CFI erred in holding that Serrano was an accommodation indorser.NEGO . the indorser makes the indorsement for the accommodation of the maker. but it was not the accommodation described in the law. but to relieve himself from a distasteful situation. 95 .e. a mere favor to him and one which in no way bound Serrano. and the arrangement made in this particular case. and for the purpose of lending his name to some other person. the latter paying 1% per mo. to have the defendant indorse the note. the lender paying nothing. w/o receiving value. acceptor. as the indorser.Quevedo Camille Umali MAULINI V SERRANO 28 Phil. not to the holder. value received. June 5.. The accommodation to which reference is made in Sec29 is not one to the person who takes the note i. 2. but one to the maker or indorser of the note. -In other words: An accommodation note is one to which the accommodation party has put his name. the indorser." -CFI: (1) By verbal agreement between the indorser Serrano and the indorsee Maulini. Manila. acting solely as an agent. but. who requests it. (2) It was immaterial whether there was a consideration for the transfer or not. A PN was issued by Padern. Serrano. nor did the indorsee lose. Dec 16. and where the only consideration for such indorsement passes from the indorser to the indorsee. Defendant Serrano was not an accommodation indorser. rather.e. he having furnished the money which was the consideration for the note directly to the maker and being the only person who had the slightest interest therein. YES. The credit given to the accommodation party is sufficient consideration to bind the accommodation maker. -There never was a moment when Serrano was the real owner of the note. at other times it was a part of the interest which the borrower was to pay. Disposition Judgment reversed and complaint dismissed. According to the method usually followed in these transactions. nor one where there is a consideration sufficient to sustain an action on the indorsement. 1912. It is true that in this case it was an accommodation to the plaintiff. this was done at the special request of the indorsee Maulini and simply as a favor to him. Such an indorsement is generally for the purpose of better securing the payment of the note – i. 29 of NIL defines an accommodation party as "one who has signed the instrument as maker. The note was indorsed on the back as follows: "Pay to the order of Don Fernando Maulini. He was paid absolutely nothing for becoming responsible as an indorser on the paper. the broker. or alter his position thereby. the payee or indorsee. HELD 1 YES -It seems that Serrano was a broker doing business in Manila and that part of his business consisted in looking up and ascertaining persons who had money to loan as well as those who desired to borrow money and. in a popular sense. 5 1912. ISSUES 1 WON CFI erred in ruling that the indorsement was without consideration. was acting as agent for the indorsee. 640. In this case. took the note in his own name and immediately transferred it by indorsement to the lender. not to secure payment. Moreno and Gimenez in favor of Serrano for P3K due on Sept. 1914 ~rean~ FACTS -The action was brought by plaintiff Maulini upon the contract of indorsement alleged to have been made in his favor by defendant Serrano upon a PN. In cases of accommodation indorsement. the broker Serrano delivered the money personally to the borrower.. as a mere vehicle for the transference of naked title. It was always the note of the indorsee Maulini. a vehicle by which the naked title to the note passed from the borrower to the lender. notwithstanding such holder at the time of taking the instrument knew the same to be only an accommodation party. in making the indorsement. acting as a mediary. without consideration. he lends his name to the maker." -CFI misunderstood this definition. Sometimes this was a certain % of the sum loaned. under the evidence offered. Moreland. Such a person is liable on the instrument to a holder for value. pay or forego anything. immediately transferring to him title thereto by indorsement. G. the note being at once transferred to the lender. the situation does not present one creating an accommodation indorsement.for use of the money. Ratio Where an indorsement is made as a favor to the indorsee.) A. for the purpose of accommodating some other party who is to use it and is expected to pay it. This was done. So Maulini appealed. Serrano obtained compensation for his services of the borrower. (Sgd. According to his custom in transactions of this kind. and that his indorsement was wholly without consideration. negotiate a loan between the two. or indorser. The only payment that the broker received was for his services in negotiating the loan. and the procedure in this particular case. Reasoning -Sec. the lender taking 1% and the broker 1/2%. Maulini stating to Serrano that he did not wish his name to appear on the books of the borrowing company as a lender of money and that he desired that the broker take the note in his own name. drawer. was an accommodation indorser. Serrano.

207 (1925) ~mel~ FACTS SUBJECT: five promissory notes of ten thousand pesos each MAKER: Ramon Maza and Francisco Mecenas PAYEE: PNB -The notes were not taken up by Maza and Mecenas at maturity. *When accommodation parties make payment to the holder of the notes. they have a right to sue the accommodated party for reimbursement. b.) it was Echaus who negotiated the notes with the bank and who is accordingly the real party in interest and the party liable for the payment of the notes. nor have they received the value thereof. -Trial judge rendered judgment in favor of plaintiff and against defendants jointly and severally ISSUE WON The defendants are liable to pay the amount on the promissory note (considering that they are accommodation parties) HELD: YES. Disposition Judgment affirmed 96 . the accommodation parties being the sureties. Their liability on the instruments is primary and unconditional. to fasten liability upon an accommodation maker. since the relation between them in effect is that principal and sureties. The consideration which supports the promise of the accommodation maker is that parted with by the person taking the note and received by the person accommodated.) defendants have not negotiated the notes with the bank. To recover the amounts on the face of the notes with interest.) the notes were went in blank to them by Enrique Echaus with the request that they sign them so that he. The law now is that the accommodation party can claim no benefit as such.NEGO . action was begun by PNB against Maza and Mecenas in CFI Iloilo. it is not necessary that any consideration should move to him. -Even if defendants never received the value of the notes. but he is liable according to the face of his undertaking the same as if he were himself financially interested in the transaction. even assuming that it is fundamental that an instrument given without consideration does not create any obligation in favor of the payee. or delivered them to the bank in payment of any pre-existing debt c.Quevedo Camille Umali PHIL. -Defendants’ defense was that a. Echaus might negotiate them with PNB in case of need. 48 Phil. But as accommodation parties. the defendants having signed the instruments without receiving value therefore and for the purpose of lending their names to some other person. Echaus is merely secondarily liable. -The most plausible and reasonable stand for the defendant sis that they are accommodation parties. are still liable on the instruments. however. NAT’L BANK V MAZA Malcolm.

Veloso has certain properties in Manila but is based in Cebu. Gonzalez asked Xavier to execute a second mortgage to him upon the Legarda property. 1927 ~javi~ FACTS -Xavier is an agent working in Manila of Veloso. ISSUE WON Veloso is jointly and severably liable with Xavier HELD: YES -In this case the accommodating party and the accommodated party unite in making a joint and several note to a person who advances the face value of the note to one of its makers at the very time of its creation. TC gave judgment jointly and severally against the defendants. but as to the creditor. Gonzales would thus be fully paid and that would end the matter. Mejo magulo talaga yung case and may stuff na hindi nilagay si Campos. They approached Gonzalez and Gonzalez agreed to lend the money on two conditions: 1)Xavier and Veloso execute a joint and several note in the amount lent by Gonzalez. the former is entitled to all the rights of surety. gave judgment over in favor of Veloso against Xavier for whatever the former should pay upon the judgment. was the money which the payee advanced to Xavier.NEGO . it was found that the Legarda property was already encumbered with a mortgage to another bank. *however the Court noted that the second mortgage was already under foreclosure. The consideration for the note. feel free to approach me. and Xavier is the real debtor. Thus to secure himself further. Xavier wanted to purchase a property in Legarda for which he lacked P25000 for partial purchase. -Acuna sued Veloso and Xavier for the amount in the note and interests. The encumbrance on the Legarda property was now 25000 plus 22. is in the practice of trading real estate as far as his credit allowed. TC having found that Veloso was a mere accommodation maker as regards Xavier. Value was given for the note.070 (1/2 interest in the Pangasinan property) *Acuna is a transferee of the note executed by Xavier and Veloso. and this was enough. 97 . Xavier on his own.Quevedo Camille Umali ACUÑA V VELOSO 50 Phil 241. In equity as between Veloso and Xavier. must be understood to extend to such proportion of the proceeds of the contemplated foreclosure sale of the mortgaged property on Legarda Street as the amount of the note. 2) that Xavier (only) purchases ½ interest which Gonzalez had in a mortgage credit on a property in Pangasinan. But he is said to be a holder only and not a holder in due course for although he purchased the note for value. *issue of Veloso’s subrogation (Veloso on appeal raised the issue of his right to be subrogated to the rights of Gonzalez in case amount after foreclosure of Legarda property was not enough) -“ Veloso's right of subrogation in case enough is not realized to pay off the whole. he purchased the note 2 years after it fell due. and lastly ordered that Veloso be subrogated to the rights of the plaintiff Acuna in a mortgage given by Xavier to secure the debt. -after execution of note. and interest. Street. as regards both makers.” *if hindi nyo maintindihan and feeling nyo kulang sa details. He asked assistance from Veloso. and it cannot be said that the note was lacking in consideration as to Veloso because he himself received non of this money. bears to the entire secured indebtedness. Thus it held that if the amount received for the foreclosure of such property is enough to cover the indebtedness of Xavier and Veloso. (the court discussed the case by putting Gonzalez in the shoes of Acuna. both Veloso and Xavier are mere joint and several makers.

Varona didn’t reimburse him. CC is irrelevant -A person placing his signature upon an instrument otherwise than as a maker. 29) -Again assuming that Art. 19 SCRA 924 ~mini~ FACTS SUBJECT: promissory note for P15k.T. The proceeds of the note. because nothing extant in the Negotiable Instruments Law defines the right of one accommodation maker to seek reimbursement from another. and that he signed it only as surety for Varona. Varona and Sadaya. 98 . CC applies (being an accommodation indorser. SADAYA V SEVILLA L-17845. in themselves. TF.” -Based on that provision. The administrator resisted the claim saying that the deceased Sevilla did not receive any amount as consideration for the promissory note. Case was elevated to CA. ISSUE WON Felipe is liable HELD: YES -A check is a negotiable instrument governed by NIL (Secs. he may obtain security from the maker to protect himself against the danger of insolvency of the latter. -In this case. so their case is covered by Art. presented check to drawee bank. If any of the guarantors should be insolvent. he filed collection suit in Manila MTC.NEGO . -The bank collected the balance plus interest from Sadaya.Quevedo Camille Umali ANG TIONG V TING L-26767. including the payer. and there is no evidence showing Varona is insolvent. CFI affirmed. As of June 15. February 22. but the latter certified the same to SC since it involves pure questions of law. 63. Unheeded.850. drawer or acceptor is a general indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity (Sec.) said remedy is between accommodation indorser and accommodated party only and cannot diminish nor defeat the rights of a holder for value. P15k. April 27. -MTC ruled in his favor. Disposition CA judgment affirmed. was received by Varona alone. Sadaya’s payment to the bank was made voluntarily and w/out any judicial demand. -Sevilla died. 1968. -Sevilla and Sadaya are. 2073: “When there are two or more guarantors of the same debt. 2071. When the check was dishonored. a joint and several accommodation maker who pays on a promissory note may directly demand reimbursement from his co-accommodation maker without first directing his action against the principal debtor provided that (a) he made the payment by virtue of a judicial demand or (b) the principal debtor is insolvent. 1950. The provisions of this article shall not be applicable unless the payment has been made in virtue of a judicial demand or unless the principal debtor is insolvent. he is still liable to HDC even if the latter. Corp. Disposition Judgment affirmed. at the time of taking the instrument. Sevilla HELD: NO -The court goes to the Civil Code for this case. in the same proportion. a holder for value in due course -Sevilla and Sadaya signed as co-makers as a favor to Varona. payable to “cash or bearer” DRAWER: Lorenzo Ting INDORSER: Felipe Ang (indorsement in blank) BEARER: Ang Tiong. ISSUE WON Sadaya can demand reimbursement for the amount he paid on the note from his coaccomodation maker. NIL) -Even assuming that appellant is just an accommodation party. the share shall be borne by the others. jointly and severally PAYEE: BPI INDORSEE: C. 1 and 185). 22 SCRA 713 ~brian b~ FACTS SUBJECT: PBCom check for P4k. coguarantors of Varona.I. appellant’s reliance on Art. No payment was made after that date. 2071. the one among them who has paid may demand of each of the others the share which is proportionally owing from him. 1967. knew him to be only an accommodation party (Sec. with ineterest at 6% per annum. Sadaya filed a creditor’s claim against his estate for the sum Sadaya paid on the note. he made written demands to Lorenzo and Felipe. the outstanding balance was at P4. payable on demand MAKERS: Sevilla.

and as to them the only superiority of a bill or note over other unsealed evidence of debt is that it prima facie imports a consideration.40 directly to the Company for labor and materials.234. it was the DA executed by the Company in favor of PNB which principally moved the Prudencios to sign the PN also in favor of PNB. Under the terms of the DA.000 was. Palawan. YES. Another payment for P5. waived payment of the first three releases. Ratio In lending his name to the accommodated party. unlike a contract of suretyship. 1986. PNB refused. denied by PNB as the loan was already overdue. Concepcion & Tamayo Construction Company (Company) had a pending contract with the Bureau of Public Works for the construction of the municipal building of Puerto Princesa. Toribio. the latter is still liable for the whole obligation and such extension does not release him because as far as a holder for value is concerned. a relative of the Prudencios and the attorney-in-fact of the Company. ISSUES 1. They were finally persuaded as Toribio also signed on the day of the signing of the PN a Deed of Assignment (DA) assigning all payments from the Bureau to the Company in favor of PNB.000 payable to PNB secured by a real estate mortgage on the property of the Prudencios. in this case. a payee may be considered a holder in due course. 99 . 143 SCRA 7 ~ricky~ FACTS SUBJECT: Promissory note (PN) for P10. The Company abandoned the work and subsequently. 2. WON the CA erred in holding the Prudencios as solidary co-debtors instead of sureties. the Bureau. The CA affirmed. prevailed upon the Prudencios to mortgage their property to secure the loan of P10. Concepcion and Tamayo. 2. Not only was PNB an immediate party or in privy to the PN. such a rule cannot apply to PNB. MAKER: Jose Toribio as attorney-in-fact of the Company and the Spouses Prudencio as accommodation parties. PNB approved the Bureau’s release of 3 payments directly to the Company in violation of the DA and without notice to the Prudencios who stood to lose their property once the PN falls due without it having been paid because PNB. Disposition Petition is GRANTED. the liability of the accommodation party remains not only primary but also unconditional to a holder for value such that even if the accommodated party receives an extension of the period for payment without the consent of the accommodation party. As the Company needed funds for the construction. changed the tenor and condition of the assignment of payments made by the principal debtor and released to such principal debtor payments from the Bureau which were more than enough to wipe out the indebtedness to the PNB. Ratio Between the immediate parties to a negotiable instrument – the parties between whom there is privity – the consideration may be inquired into. made 3 payments totaling P11. The Bureau rescinded the contract and assumed the work. the accommodation party is in effect a surety. with the approval of PNB. Thus. its life as a partnership expired.NEGO . However. in effect. the Prudencios can validly set up their personal defense of release from the real estate mortgage against PNB. The trial court ruled for PNB and ordered the Prudencios to pay jointly and severally with the owners of the Company. it is clear that there are no further conditions which could possibly alter the agreement without the consent of the Prudencios. it had dealt directly with the Prudencios knowing fully well that the latter only signed as accommodation makers but more important. WON the CA erred in not holding that the Prudencios were released from their obligation when PNB.000 being negotiated with PNB. without their knowledge and consent. Yet. Decision of the CA reversed. that is.Quevedo Camille Umali PRUDENCIO V CA L-34339 July 1. Reasoning Although as a general rule. he is a solidary co-debtor. PNB cannot be regarded as having acted in good faith which is also one of the requisites of a holder in due course. PAYEE: PNB -Unknown to the Prudencios and contrary to the DA. however. HELD 1. The Prudencios wrote PNB requesting the cancellation of the mortgage since the conditions of the contract were changed without their knowledge when PNB allowed payment to the Company instead of on account of the loan. NO.

Inc. -The check had the following tenor: “Pay to the order of Austin. Bankers PAYEE: Austin. not State Street Grocery. Disposition A new trial is in order. plaintiff had no account with Gross personally. offered by Gross for the purpose of showing that the check sued on was the check of the State Street Grocery Co. was excluded. -Parol evidence. -The statute doesn’t distinguish between cases where he has indicated his intention unmistakably and where he has done so more obscurely. Judgment against Gross.” -Whether defendant Gross was authorized to sign or not.Quevedo Camille Umali AUSTIN. NICHOLS & CO V GROSS 98 Conn. not in the aid of his intention. -The proviso that the agent or representative shall not be liable on instrument if he was authorized to sign. carries w/ it a fair implication that he shall be liable if not authorized. but to ascertain it. The body of the check does not contain any reference to the State Street Grocery as the drawer of the check. Andretta & Co. -Plaintiff sued Gross. -We do not understand how the fact of authorization could be proved in any case where it was not established by the instrument except by extraneous evidence. ISSUE WON the president should be personally liable HELD: YES -At common law. 100 . 20 of the Negotiable Instruments Law. $334 86/100. LJ Lippmann. and not of Gross. signed by pres and treas in own names w/ addition of official titles. and the intention of the parties effected. Pres.. and whether the check contains words indicating that he signed for and in behalf of a principal or in a representative capacity. remedy against agent signing a note w/o authority was not upon note itself. there was need to charge him w/ liability if authority was lacking. Nichols & Co. Liability exists as a duty imposed by law. for the hypothesis intention to the contrary has been adequately revealed. ISSUE WON parol evidence is admissible to prove that the signature “M. Nichols & Co.” “State Street Grocery Co. All that is necessary between the original parties is that these words should be such as to reasonably apprise or put on notice the payee that it was or might be the check of the company. -Held in a case: a note bearing name of corp in margin. or in a representative capacity. At this time. principal stockholder DRAWEE: Pallotti.. 80 ALR 1344 (1927) ~chriscaps~ FACTS Plaintiff is owner thru indorsement of promissory note signed J&G Lippmann. Gross” was not an individual signature but was the signature of State Street Grocery Co. there might be a failure of justice when note wrongfully issued was in the hands of later holders. -If agent signing w/o authority isn’t liable.. No doubt a remedy in tort is available to such holder if agent had misrepresented his authority as to be guilty of fraud. but for breach of implied warranty. By such proof the true contract is revealed. -If words appear on any part of the check indicating that Gross signed in behalf of the State Street Grocery. he is not liable if he was duly authorized. NEW GEORGIA NATL BANK OF ALBANY V J&G LIPPMANN 249 NY 307. The instant case falls under the fifth class: “Where the negotiable instrument contains words indicating that one has signed for or on behalf of a principal.” -The check was duly presented for payment and has not been paid. was in law the individual promise. Gross.. 164 NE 108. three hundred thirty-four 86/100 dollars. Inc. and discounted by a bank w/o notice dehors the instrument. 120 Atl. M. 596 (1923) ~joey~ FACTS SUBJECT: check in payment for goods by State Street Grocery DRAWER: (?) State Street Grocery/ Gross. But this section of the statute does not say that the words indicating the relation in which Gross signed the check must appear in the body of the check. whether the words appear at the head of the check or on its margin. This section covers at least five classes of cases. Liability is imposed upon agent. It asks for judgment in the alternative against corporation (maker of note) or against the president personally if he acted w/o authority. not to vary it. 782. HELD: YES -The decision must be based upon the terms of Sec. might be proved by evidence outside the check for the purpose of carrying out the intention of the parties and establishing just what the contract was. Inc. -In proportion as the agent was relieved of liability if he acted w/ authority.NEGO . that will be sufficient. Inc.

Disposition Judgment affirmed. although the agent executed the instrument as an agent. Hopper. -All the exhibits show that Mayer signed in his individual capacity and not as agent for other defendants. To go beyond the face of the instrument is to nullify Sec. The exhibits don’t show either that a trade-name was used or that the parties thereto were partners.(2d) 291. and in suits upon negotiable instruments no evidence to charge any principal thereto unless his name in some way is disclosed on the instrument itself. -The instrument in question here was a negotiable instrument (even if it was secured by a deed of trust as it is negotiable in form). but the law seems well settled that in the case of negotiable instruments an undisclosed principal could not be charged at any time. but by reason of the character of the instrument. -Pratt sued Mayer.NEGO . Payne and Trimble to recover a deficiency on the note. -The trust from Mayer to the CTC secured the payment of a note representing a portion of the purchase price. -Trimble carried on the negotiations for the purchase of the property for the parties. 2d 517 (1936) ~’del~ FACTS -Mabel Pratt conveyed a tract of land to Mitchell Mayer. When a negotiable instrument is executed by an agent without sufficiently indicating on its face who the principal is.(CTC) as trustee and Pratt as beneficiary therein. parol evidence cannot be introduced to charge the principal. -Said note was signed by Mayer in his individual capacity and not designating himself as an agent. -In the case of negotiable instruments. Neither did he disclose in the note the names of any of the other interested parties in the transaction. -Mayer then executed a deed of trust to the California Trust Co. ISSUE WON Mayer is liable on the instrument as agent HELD: NO.Quevedo Camille Umali PRATT V HOPPER 12 Cal App. 55 P. not by reason of the status of the parties. -This exception to the rule is based upon the reason that each party who takes a negotiable instrument makes his contract with the parties who appear on its face to be bound for its payment. 3099 of the US CC. this restriction arises. 101 . -Mayer also executed a deed of the property to Hopper and Payne. -An undisclosed principal has been held liable except in cases of negotiable instruments and specialties.

WON the documents are bills of exchange FAME and that defendant has meritorious defense. E. Australia and China and deposit the WON the bank is responsible to the drug company for amounts to the credit of the drug company. maker. 684 (1933) ~jaja~ FACTS discovery of anomalies. 102 . FACTS Aruego did not disclose that he was signing as a -Involves 22 transactions between Bank and Aruego for representative of PEFC. take the checks which came to his hands for the drug company to the Iloilo branch of the Chartered ISSUE Bank of India. Dolores Salcedo. he signed in his capacity as President of Philippine as an acceptor/drawee. disclose his principal is not exempt from liability. had a credit accommodation with Bank. Upon the PBCOM V ARUEGO L-25736. YES 2.285. The checks were in that bank money belonged to the Insular Drug Co. but 1. But -The Insular Drug Co. G. The nature of only instruments evidencing indebtedness because acceptance is important only in the determination of payments were made before acceptance the kind of liabilities of the parties involved. drawer. In doing so. therefore. Aruego's defenses: -The defendant who is a lawyer should not have signed 1. WON Aruego is a primarily liable set aside default order: failure to answer was due to 3. For failure to disclose his the printing of defendant's periodical. WON Aruego is a mere representative aside order of default. the bank bank. he's not a principal obligor. U. and HELD: YES a fourth party. without receiving value for -The instruments were signed: "Jose Aruego (Acceptor) the purpose of lending his name = surety. Foerster and Carmen E. Inc. Inc.) Jose Aruego" primarily liable.R. withdrawn by U. de The bank will have to stand the loss occasioned by Foerster. No.NEGO .E. but not in the determination of whether a commercial paper is a bill of exchange or not. After the indorsement on of Foerster and permitted Foerster and his wife to the checks was written "Received payment prior make withdrawals without there being made indorsement guaranteed by Philippine National authority from the drug company to do so. As a and proving that after the money was withdrawn consequence of the indorsements on checks the from the bank it passed to the drug company which amounts therein stated were subsequently thus suffered no loss. Some of not to Foerster or his wife or his clerk. 102 SCRA 530 ~iNa~ NATURE ISSUES Appeal from an order of trial court denying motion to set 1. he became Education Foundation (PEFC). L-38816 58 Phil. -Eventually the Manila office of the drug company Disposition Judgment affirmed.) HELD The SC found that failure was due to E. When the the checks were drawn against the Bank of bank credited those checks to the personal account Philippine National Bank.. periodical 3.. including those of Juan Llorente. Foerster committed suicide. publisher of the primarily and personally liable for the drafts. is a Philippine corporation there is no evidence showing that the bank knew that with offices in the City of Manila. -Accomodation party = one who signs instrument as The total amount demanded was P35k. de Foerster was his stenographer. (Sgd. the amounts represented by the checks Foerster deposited checks.92. indorser. with the Iloilo branch of the Philippine -The bank could tell by the checks themselves that the National Bank. Defendant principal. investigated the transactions of Foerster. formerly a salesman of drug company for the The Insular Drug Company claims that it never received Islands of Panay and Negros. that paper is 3. (Remember requirements to 2. Aruego is personally liable. The bank this connection it should be explained that Carmen could relieve itself from responsibility by pleading E. YES printers would collect the cost of printing from Bank. Foerster was Foerster was misappropriating the funds of his principal.. Instead. The 2. 1981. and placed in the personal account of Foerster. Jan 31. Iloilo Branch. NO defendant (Aruego) does not have a meritorious -Sec.Quevedo Camille Umali INSULAR DRUG CO V PHIL. Foerster also acted the face value of 132 checks here in the question as a collector for the company. but the bank has not done so. Angel Padilla. He was instructed to covering a total of P18. In amounts represented by the checks. the negligence of its agents. Estanislao Salcedo. Manager. but only an -As long as a commercial paper conforms with the accommodation party definition of a bill of exchange. the documents are not legally bills of exchange but considered a bill of exchange.. 20 of NIL says that an agent who does not defense." The made itself responsible to the drug company for the indorsement on the checks took various forms.. NAT’L BANK Malcolm.

In the case of a bill of exchange. secondarily liable) was released from liability on the draft because of period intervening between his indorsement and the presentation to drawee for payment. This was refused. Jones DRAWEE: People's Bank and Trust Company PAYEE: E. who refused to pay it] -Jones appealed on the ground that an action on a check cannot be had against the drawer without allegation and proof of presentment and demand on the drawee ISSUE WON an action on a check can be had against the drawer without presentment and demand on the drawee HELD: NO. presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof.P. the liability of the drawer and indorsers (emphasis by me). But take note. case remanded. these cases go only to the extent of holding that the debt. ISSUE WON Bowen (as an indorser. *Note that this case involves a draft which is a bill of exchange. is charged only to the extent that the drawer has sustained loss by the failure or negligent delay of the payee to present the check to the drawee for payment -Issue of loss or injury to drawer arises only when he claims the debt is discharged by reason of negligence of payee in presenting the check for payment--this is not the case -Such cases do not encroach upon the rule that presentment. -Bowen indorsed and forwarded by mail the draft to Trabert. which the check was designed to pay. under Sec. the court is satisfied that the draft was presented for payment within a reasonable time. Campos Notes: Under Sec. 1903. 55 P. 218. of a demand bill can be preserved indefinitely.W. 365. NOT the time when Bowen let go of the draft) -Bowen unqualifiedly indorsed the draft and put it in circulation by sending it to Trabert at a distant part of the country and probably knowing that Trabert was travelling to San Francisco where he would negotiate the paper.Quevedo Camille Umali COLUMBIAN BANKING CO V BOWEN 134 Wis. 53. -Trabert indorsed the draft to Columbian Banking Co. THUS (as a way of reconciling the two). hence. where an instrument payable on demand is negotiated in an unreasonable length of time after issue. -The only time to be considered here is the time intervening between the last negotiation and the presentment (meaning between time when Trabert negotiated it to Columbia and the time when Columbia presented the said draft to drawee bank for payment. FICK V JONES 185 Wash. will be subject to personal defenses. although a reasonable time may not have elapsed between the last negotiation and presentment for payment of a demand bill (and so the secondary parties remain liable). Fick -Fick brought an action on the check against Jones -Judgment was rendered in Fick's favor [*it was neither alleged nor proven that the check was ever presented to the drawee for payment: the TC found it had not been presented to drawee but to drawer in 1933 (check dated 1929). As to what constitutes reasonable time is a question of fact. provided presentment is made WITHIN A REASONABLE TIME FOR LAST NEGOTATION. In the case at bar. 103 . 2d 334 (1936) ~apple~ FACTS SUBJECT: Check DRAWER: J. Columbian demanded payment from Bowen. 71 (on demand nego instruments).NEGO . 451 (1908) ~chrislao~ FACTS -Farmer's Merchant Bank (drawer) sold $400 draft drawn on National Bank of North America (drawee) payable to Bowen (payee). the holder is NOT a HDC. the important thing is that after Trabert negotiated the draft. -Fick cited a number of cases to support his contention that failure to present a check to the drawee does not release the drawer unless he sustains loss or injury in consequence of such failure -However. Bowen was NOT released from liability. HELD: NO. The endorsement was made on June 16. with direction to dismiss. the holder who takes the instrument after the lapse of a reasonable time from issue. Columbian presented the draft to drawee bank for payment. said draft was immediately presented for payment. 114 N.W. a traveler. At any rate. demand and notice of dishonor are essential prerequisites to an action against the drawer on a check Disposition Judgment reversed.

and notice were duly given Oct. (1907) ~rach~ FACTS HELD: NO SUBJECT: Check dated December 30. notwithstanding the holder does so unreasonably delay. The check should exchange drawn on a bank payable on demand' is have been presented for payment within a reasonable intended for immediate use and not to circulate as a time -the check in suit should have been presented promissory note. protest. Levine should still be liable. But if not Gordon then passed the check to one Saievitz in presented within the time thus fixed. Morrison only hands of his banker to the holder if the check. under circumstances. and its circulation -Gordon’s version: Levine asked him not to present the from hand to hand by indorsement does not extend the check for a couple of days. The check is the who previously commenced suits by attachment acknowledgement of a certain sum due. and -Check was not presented Oct. presentment on Friday was not within a reasonable -'In determining what is a 'reasonable time' or an time. that payment within a reasonable time after it is issued. he presented it on time for its presentment. loss.Quevedo Camille Umali GORDON V LEVINE Morton. On Friday. the drawee and the payee of a DRAWER: Max Levine. 418. if any. defendant check are all in the same city or town. and in the negotiable instruments act as 'a bill of continued to maintain such account. continuing liable otherwise. Clark & Brothers (C&B) debtor. he their failure to present the check on the day after it assumes the risk of the drawee’s failure. This results from -Levine’s version: When the check was drawn. for collection. drawer actually suffers by the delay. the holder in not making due presentment thereof. bank's messenger then went to the bank on which the If it is not so presented and the drawer sustains a check was drawn. On Tues. he had the nature of the instrument which though defined sufficient funds on deposit at the bank to meet it. to or in not giving him notice of the dishonor. or that a a reasonable time. Saturday -Where the drawer. upon showing that the may. Jan 1. still. afterwards the drawer suffers no harm.' WON there was proper diligence in presentment Disposition Exceptions sustained. SUBJECT: check delivered and transferred on demand. unless Morrison he has suffered some loss or injury thereby. the Provident Securities & Banking loss by reason of the failure of the drawee.3 because C&B was then only pro tanto. and presented check January 1958. and unless the duly protested. Rootstein who deposited it on Thurs. 1905. SUBSEQUENT INDORSEMENTS: Bohn & Co. 194 Mass. as by the intermediate failure of his banker. payment refused. and there is a loss payment of a bill. notice given to McCartney. Boston. 'unreasonable time' regard is to be had to the nature of the instrument. 80 NE 505.W. closed or stopped payment. and he is not discharged by any laches of PAYEE: Bohn & Co. the usage of trade or business. If it is presented and paid Monday morning and was told there were no funds.NEGO . with respect to such instruments and the facts of the ISSUE particular case. he has no reason ISSUE to complain of delay not unreasonably protracted. and that made the check his own to the discharge of the drawer. Defendant seeks exceptions from this ruling. in the Faneuil Hall -The general rule is that a check must be presented for National Bank. unjust to subject the drawer to the loss if any -The court refused to instruct the jury that the transfer to resulting from failure to present it for payment within successive holders would not extend the time. and it consequently would be before the close of banking hours on Mon.2. there it ought to remain till called for. McCartney -The drawer is the principal debtor. Saievitz indorsed it to one it falls not on him but on the holder. brought. settled with the C&B then absolute appropriation of so much money in the withdrew his deposits with C&B. Hence. plaintiff hours on the day after its delivery. he will Company. 1957 but was presented only on January 1958 HELD: YES DRAWER: McCartney -The drawer is treated as in some sort of principal DRAWEE: E. On Oct. and within a reasonable time. 104 . MORRISON V McCARTNEY 30 Mo. the check should DRAWEE: Provident Securities & Banking Company be presented for payment before the close of banking PAYEE: Samuel Gordon. 183 ~cHa~ FACTS before suit. If WON Morrison was entitled to recover. and he was endorsed to them. be deemed to have drawer sustained no injury by the delay. It is an compromised the suits. with this be discharged from liability to the extent of such non-payment.6. and found its doors closed.

105 . or say ten days. Thereafter. the same would have been paid. 186. and that had it not been for the unreasonable delay in its presentation for payment.NEGO . for the check to reach Cebu. but the check was dishonored for "insufficient funds. but its application is subject to the condition imposed by Section 186. while an indorser is. Liability of person secondarily liable. and upon receipt thereof by it on April 14. The fact. This is contrary to the essential nature and character of negotiable instruments their negotiability. -It is not claimed by PNB that the conclusion of the CA that there was unreasonable delay in the presentation of the check for payment at the drawee bank is erroneous. ISSUE WON indorsee Seetois demanded by PNB liable for the refund HELD:NO. 1948. and these obligations are. 1948. claiming that at the time of the negotiation of the check the drawer had sufficient funds in the drawee bank PBC. drawn against the same bank and cashed at the same Surigao agency. to Seeto answered asking that PNB's contemplated suit be deferred while he was making inquiries about the reasons for the dishonor of the check.000. 1948. when instrument dishonored. considered discharged by an unreasonable delay in the presentation of the check for payment. or until March 30." So the check was returned to PNB's Surigao agency. The check was mailed to PNB's Cebu branch on March 20. that checks of the drawer issued subsequent to March 13. Within what time a check must be presented. when the instrument is dishonored by nonpayment. Assuming that it took one week. Subject to the provisions of this Act. 186 as to the indorser is due to the fact that his discharge is already expressly covered by the provision of Section 84. It was not mailed until seven days thereafter. SEC. -The silence of Sec. 1948. actually or by legal presumption. and that had PNB's Surigao agency not delayed to forward the check until the drawer's funds were exhausted. 84. -There is no authority sustaining the proposition that an indorser of a check is not discharged from liability for an unreasonable delay in presentation for payment. an immediate right of recourse to all parties secondarily liable thereon accrues to the holder. and presented a check in the amount of P5. The check is dated March 10 and was cashed by the petitioner's agency on March 13. Seeto made a general and unqualified indorsement of the check. A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. NAT’L BANK V SEETO Labrador. -Section 84 of the Negotiable Instrument Law is applicable. The reason for the difference between the liability of the indorser and that of the drawer in case of dishonor is that the drawer is not probably or necessarily prejudiced thereby. the indorser being a person secondarily liable on the instrument. and was presented to PBC for payment on April 9. No excuse was given for this delay. said branch sent two letters to Seeto demanding immediate refund of the value of the check.000 therefor.Quevedo Camille Umali PHIL. 1948. were not dishonored positively shows that the drawer had enough funds when he issued the check in question. SEC. payable to cash or bearer. or ten days after issue.The supposed assurances of refund in case of dishonor of the check are precisely the ordinary obligations of an indorser. and PNB's agency accepted it and paid Seeto the amount of P5. 1948. They are supposed to be passed on with promptness in the ordinary course of business transactions. under the law. Benito Seeto called at the Surigao Branch of PNB. 756 (1952) ~jojo~ FACTS On March 13. admitted by the witnesses for the petitioner. and drawn by one Gan Yek Kiao against the Cebu branch of the Philippine Bank of Communications (PBC). After consultation with the employees of the branch. neither can there be any excuse for not presenting it for payment at the drawee bank until -. 91 Phil. the petitioner herein would have been able to receive payment therefor. Seeto refused to make the refund demanded. to the effect that the check must be presented for payment within a reasonable time after its issue. not to be retained or kept for such time as the holder may want. otherwise the smooth flow of commercial transactions would be hindered.

the case was remanded to the trial court for determination of whether any defense existed between the original parties. June 18. In this case. et al. there is a strong showing that the check was not dishonored. for if it was not due to the fault of the drawer. ISSUE WON the conflicting circumstances of the check being dishonored and becoming stale affect the validity of the redemption sale HELD -For a check to be dishonored upon presentment and to be stale for not being presented at all in time are incompatible developments that have variant legal consequences. 35767.NEGO . holding that Raymundo Crystal’s redemption of the 4 parcels of land in question acquired by Pelagia Ocang. it does not follow that simply because he was not a HDC. was invalid as the check which Crystal used in paying the redemption price of P11. but should have been deposited instead with the bank mentioned in the crossing. If it had only become stale. However. -The checks were deposited with the CBC and the latter presented to the drawee for collection. it becomes imperative that the circumstances that caused its non-presentment be determined. as the drawee had no funds they were unpaid and returned. although it became stale. 1554 (1960) ~athe~ FACTS -Tan Kim drew 11 checks payable to “cash or bearer” upon the Equitable Banking Corp payable to Pinong and Muy for some shoes the former had promised (8 of these checks bear two parallel lines between which these words are written: non-negotiable-China Banking Corporation). He presented them to the drawee bank (EBC) but they were all dishonored on the ground that the plaintiff (a) failed to prove he was a holder in due course. HELD -Chan Wan is indeed not a holder in due course since he knew that the checks had already been dishonored. 1976. and (b) the checks been crossed checks should not have been presented to the drawee for “payment”. the value of the check was never realized. and that Pelagia Ocang had actually been paid the full value thereof. the redemption was null and void. CHAN WAN V TAN KIM Bengzon. 50 O. 106 . 71 SCRA 443 ~kiyo~ FACTS -The SC affirmed a CA decision.Quevedo Camille Umali CRYSTAL V CA [Ocang. de Gracia] L-No. Crystal filed and MFR.G. -The checks reached the hands of Chan Wan.200 had been either dishonored or had become stale hence. But since lower court did not mention what defenses Tan Kin prove. His only disadvantage is that the negotiable instrument is subject to defenses as if it were non-negotiable. he could not recover on the checks. If indeed the questioned check was dishonored. However. it would be unfair to deprive him of the rights he had acquired as redemptioner. Disposition SC decision is reconsidered and the case remanded to the TC.

NIL. she would have a right of action against the drawer companies. tha payee of the illegally encashed checks could be allowed to recover directly from the bank responsible for such encashment regardless of whether or not the checks were actually delivered to the payee. CA affirmed the judgment of the RTC. According too the branch manager. The bank was negligent.Quevedo Camille Umali ASSOCIATED BANK. Petitioners appealed saying that the the respondent had no cause of action and should have proceeded against the companies instead. Under Sec 72. When Reyes went to the companies to collect on what she thought were still unpaid accounts. and (2) that the check may be negotiated only once – to one who has account with a bank and. This means that the drawee should not encash the check but merely accept it for deposit. 1992 ~giulia~ FACTS Reyes in engaged in the business of RTW garments under the firm name 'Melissa's RTW. In a similar situationn. Sayson had not been authorized by the private respondent to deposit and encash the said checks. Cruz. There is no substantial difference between an actual forging of a name to a check as an endorsement by a person not authorized to make the signature and the affixing of a name to a check as an indorsement by a peson not authorized to indorse it. the bank can be held for moneys had and received. ISSUE WON Reyes had cause of action against the petitioners HELD: YES. which in turn could sue the petitioner as a collecting bank. Reyes 208 SCRA 465. she was informed of the issuance of the crossed checks. The petitioners also argued that the respondent's husband was the one who indorsed the check. Further inquiry revealed that the said checks had been deposited with the Associated Bank (bank) and subsequently paid to Sayson. and when the money is collected on the check. The possession of a check on a forged or unauthorized indorsement is wrongful. the bank would still be liable because the husband was not authorized to make the indorsements. 107 . to be sufficient. Reyes sued the petitioners to which RTC rendered a decision requiring the petitioners to pay the respondehnt the total value of the checks. Cruz V CA. There being no evidence that the crossed checks were acutally received by the respondent. which means that the drawee should pay only with the intervention of that company. Who the holder or authorized person is depends on the instruction stated on the face of the check. presentment of payment. In State Investment House v IAC the court held that the effects of crossing a check are: (1) that the check may not be encashed but only deposited in the bank. Crossing a check is special where the name of a bank or a business institution is written between 2 parallel lines. must be made by the holder or by some person authorized to receive payment on his behalf.NEGO . May 27.' The companies she deals with issue in payment crossed checks payable to Melissa's RTW. to simplify the proceedings. Cruz. Assuming that he did. (3) that the act of crossing the chec serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he ahs received the check pursuant to that purpose.

Also. bank offered the testimony of its tellerbookkeeper who said that it was unswerving custom of the bank to send to the parties. that the notice of dishonor was prepared and mailed to the defendant was the inference from the teller-bookkeeper’s self-serving declaration that she always did her duty and never failed to send out notice of dishonor. but made use of the money standing in hi saccount without waiting for any action by Gullas. Gullas went back to Cebu. As to an indorser. Atty. so PNB sent notices by mail to Gullas which could not be delivered to him at that time because he was in Manila. The bank mailed the notice of dishonor. The treasurer of the U. the plaintiff must establish that the notice of dishonor was addressed and was actually made which may be proven by direct or circumstantial evidence. 82 N. to great mortification of Gullas. -Atty. the deposit of money with a banker. because of the premature action of the bank against Gullas. 519. The basis of this doctrine is the theory of confidential contracts arising from irregular deposits e. In Louisiana however. 108 . 10 days prior to its maturity date. Gullas and Pedro Lopez signed as indorsers of this check. -When Atty.E. WON PNB had right to apply a deposit to debt of the depositor to the bank 2. other that the description of the general custom of the bank of notifying indorser.Quevedo Camille Umali GULLAS V PHIL. Check including one for his insurance was not paid because of lack of funds. Thereupon. Gullas didn’t have any notice of the set off when he issued the other checks. Bank sued the makers and the indorsees. App. In the letter. 62 Phil 519 (1935) ~ajang~ FACTS -Atty. periodicals in the vicinity gave prominence to this news. even circumstantially. 2. -Alois and Anna sold the note and the mortgage to the plaintiff bank.NEGO . -Anna maintains she did not receive any notice that the note was dishonored.g. ISSUE WON the plaintiff bank gave the indorser notice of dishonor as required under the Negotiable Instruments Law HELD: NO -To charge an indorser with the payment of the note. Note was not paid. the situation is different. -In the case. Gullas was inconvenieced because of this. notice should actually have been given to him in order that he might protect his interest. the next question is whether the bank properly enforced such right. the treasury warrant was dishonored by the Insular Treasury. -During trial. Gullas has a current account with PNB. 2d 393 ~glaisa~ FACTS SUBJECT: a promissory note MAKERS: Alfons and Lena Standaert INDORSEES: Alois and Anna de Vos -Alfons and Lena made and delivered the PN to Alois and Anna. From this premise that PNB had the right. -As a general rule. the bank said that in view of the fact that the treasury warrant was dishonored.S. STATE BANK OF EAST MOLINE V STANDAERT 335 Ill. WON award for damages should be given to Atty. NAT’L BANK Malcolm. The note recited it was secured by real estate mortgage. -However. Gullas should be awarded nominal damages. YES. the rule is denied and it is held that a bank has no such right without an order from or special assent of the depositor. The court decided to adopt the general rule as more in harmony with modern banking practice. it was cashed by PNB. YES. Gullas HELD 1. ISSUES: 1. he received the notice of dishonor and immediately paid the unpaid balance of the treasury warrant. the only evidence tending to prove. a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on the part of the depositor. for the United Veterans Bureau issued a treasury warrant worth $361 payable to the order of Sabectoria Bacos. Thus. he had no means of protection. It must be noted that Gullas was merely an indorser of the treasury warrant. Atty. the bank has applied the outstanding balances of his current accounts (worth P509) to the part payment of the check. P250. However.

When notice to drawer not required. -Even assuming that he is entitled to notice. As defense.NEGO .114 would apply: “356. then it is covered by the fifth condition of Article 356. would seem to imply that a failure to give notice of dishonor of a check discharges the maker. On the other hand. (3) Where the drawer is the person to whom the instrument is presented for payment. Notice of dishonor. when taken independent of the other provisions. Notice of dishonor is not required to be given to the drawer in either of the following cases: (1) Where the drawer and the drawee are the same person.” ISSUE WON in an action on a check the petition must aver that the maker of the check was given notice that it was dishonored HELD: NO -The two sections quoted by the defendant. non-payment is due to lack of funds.114.114. This situation is covered by the fourth condition of Article 356.185 makes a check a bill of exchange. However. maker is discharged. A check is a bill of exchange drawn on a bank payable on demand. the provisions of this chapter applicable to a bill of exchange payable on demand apply to a check.114.W.089. 217 S. the maker alleged that since the petition did not aver that notice [of the non-payment of the check when presented at the bank] was given to him.186 seem to create a distinction between a check and a bill of exchange in that the maker of the check is released upon the delay of the payee in presenting a check payment but only to the extent of the loss caused by the delay. Except as otherwise provided in this chapter. Check defined. While Article 356. (2) Where the drawee is a fictitious person or a person not having capacity to contract. if the dishonor or non-payment of the check is due to the stop payment order. and any drawer or indorser to whom such notice is not given is discharged. (5) Where the drawer has countermanded payment” -Banks would normally not pay or dishonor a check due to insufficiency of funds in the account of the maker or to a stop payment order by the maker. In which case. The check was dishonored on presentment. If on the other hand. it does not so unqualifiedly but only “except as herein otherwise provided”. the following provision of Article 356. otherwise. (4) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument. Disposition Judgment affirmed. Article 356. The payee sued. 2nd 203 (1949) ~RPR~ FACTS -Arterburn drew a check for $1. he has no right to expect or require the bank to pay his check.000 payable to JH and HA Wakefield and delivered the same for value. 109 . 212. when a negotiable instrument has been dishonored by non-acceptance or non-payment. Except as herein otherwise provided. “356. notice of dishonor must be given to the drawer and to each indorser. no cause of action was stated.185. In support of this contention the defendant cited two provisions of the law as follows: “356.Quevedo Camille Umali ARTERBURN V WAKEFIELD 309 Ky. Arterburn argued that a check is a bill of exchange and hence a notice must be given the drawer. several provisions of the NIL stand in pari material and must be construed as to give each a field of operation.

its cashier. bound to make legal demand on promisor of payment 2. It does not matter that a notice placed in the mail is not received -Section 94 NIL: Where the instrument has been dishonored in the hands of an agent.NEGO . 390. Simon PAYEE/INDORSER: Frucht INDORSEE/HDC: Ruth Simon DRAWEE BANK (payable at): People’s Bank & Trust Company of PASSAIC COLLECTING BANK: Hamilton Trust Company of PATERSON The note. who failed to collect against the Robert H. and can easily disclose the addresses of those to be charged and request that they be notified in event of default. the notices were mailed to Ruth Simon. 110 .Quevedo Camille Umali SIMON V PEOPLE’S BANK & TRUST CO 116 N. she could have given SPECIFIC INSTRUCTIONS (Phipps v Milbury Bank) PATERSON as mere AGENT for Ruth Simon for collection >>knew nothing of their indorsers or their residences >>duty as agent fully performed when it gave TIMELY NOTICE if the dishonor of the note so she could notify the prior parties. its cashier. which was sent to the Federal Reserve Bank. Disposition Judgment is reversed. and upon non-payment. In the absence of specific instructions. 184 Atl.L. If Ruth Simon desired PASSAIC to notify the indorsers. in the care of PATERSON. to give due notice of the dishonor to PATERSON >>to hold PASSAIC to a greater duty would be most unreasonable because it had not discounted the paper and presumable knew nothing of the indorsers or their residences. he must do so within the same time as if he were the holder. These notices were received by PATERSON the next day. the bank need do no more than promptly report the fact to its principal. and the principal may then notify those to be charged.J. and PATERSON are liable as agents because they did not give sufficient notice HELD: NO Ratio The holder of a note taking it to a bank for collection is familiar with the financial responsibility of the maker and indorsers. and PATERSON for negligence District Court: in favor of PASSAIC et al Supreme Court on appeal: reserved judgment ISSUE WON PASSAIC. or he may give notice to his principal. if he gives notice to his principal. addressed to each party liable thereon. Simon and Frucht. was presented to PASSAIC for payment but it was dishonored. PASSAIC as a mere agent of PATERSON for effecting collection (sub-agent) 1. Any other rule would cast too great an obligation upon banks. Thereupon. The notice of dishonor was mailed. -Mailing of notices to the principal is sufficient to relieve the agent. and the principal upon receipt of such notice has himself the same time for giving the notice as if the agent has been an independent holder. he may either himself give notice to the parties liable thereon. 793 (1936) ~owen~ FACTS DRAWER: Robert H. brought an action against PASSAIC.

it binds him only. no notice of dishonor to Dicks. 441. 111 . he is not liable. or notice of dishonor was given defendant. no protest on the note. Nothing indicates that Dicks signed. binds all indorsers. Thus. Sec. or after the omission to give notice. either before the time of giving notice has arrived. thus he is not bound by the same. Opposite the signatures and directly opposite Dicks’ name was stamped the word “indorsed. accepted. -in the construction of negotiable instruments. If he is an indorser and is bound by the waiver printed on the note. Dicks was an indorser. he is deemed an indorser. if Dicks was a joint maker of the note he is liable. 242 NW 825 (1932) ~maia~ FACTS SUBJECT: promissory note MAKER: Ives HOLDER: People’s National Bank (substituted by Deake et al.e. The note was signed on its face by Ives and Dicks. “Embodied in the instrument” means embodied in the original contract. but when it is written above the signature of an indorser.NEGO . he is likewise liable. thus he is not bound by the printed guaranty of payment or waiver of the note. 109 provides that notice of dishonor may be waived. no demand of payment made to him. and those appearing at the back thereof above the signature of the indorser. no waiver of demand or notice of non-payment or protest. Such waiver was on the face of another part of the note (the back of the instrument). no dishonor by Ives. Now. there is a distinction. The effect of a waiver appearing at the back of an instrument has the same effect as that of one appearing at the back thereof. but placed at the back thereof. there was no such distinction. -there was no presentment of the note for payment to Ives. An indorser is not bound in all events by a waiver that is not embodied in the body of the instrument. If he is a mere indorser. -here. ISSUE WON Dicks was liable HELD: NO -when the waiver is embodied in the instrument itself it is binding upon all parties. and no waiver of extension. there was no guaranty of payment.” -Above the signatures of the parties. and the waiver may be express or implied. as plaintiffs) INDORSER: Dicks -People’s National Bank sued Dicks and Ives for the promissory note. -further. demand. the NIL provides that where the signature is so placed upon the instrument that it is not clear in what capacity the person making it intended to sign. not in detached words on the back of the instrument.Quevedo Camille Umali PEOPLE’S NATL BANK OF YPSILANTI V DICKS 258 Mich. i. -the NIL has intended to make a distinction between waivers appearing on the body of the instrument itself. No presentment. or approved of the printing upon the instrument. not bound by the warranty or guaranty printed on the note. -prior to NIL.

-Indeed. -The fact that STATE failed to give Notice of Dishonor to MOULIC is of no moment. ISSUE WON MOULIC is liable for the value of the checks even if STATE failed to give her notice of dishonor HELD: YES. in order to charge the drawer. hence. Moulic issued to Corazon Victoriano.Quevedo Camille Umali STATE INVESTMENT HOUSE V CA G. as security for pieces of jewelry to be sold on commission. ISSUE WON the lower court erred in holding that protest is a condition precedent to recovery against the drawer HELD: NO. (STATE). (c) When the drawer is the person to whom the instrument is presented for payment: (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument. The checks could no longer be retrieved since they had already been negotiated. there are exceptions under -Sec.R. the fact that a specified instrument. Further. STATE allegedly notified MOULIC of the dishonor of the checks and requested that it be paid in cash instead. In other words. ELLENBOGEN V STATE BANK 197 N. 278 (1922) ~bry_sj~ FACTS SUBJECT: draft DRAWER: State Bank DRAWEE: Polish National Loan Bank PAYEE: Meyer Ellenbogen’s agent -Ellenbogen sued to recover $1650 on a draft drawn by defendant to the order of her agent for the equivalent of Polish money of that sum.NEGO . there was no need to serve her Notice of Dishonor. two (2) post-dated Equitable Banking Corporation checks in the amount of Fifty Thousand Pesos (P50. (b) When the drawee is a fictitious person or a person not having capacity to contract. The need for such notice is not absolute. upon proper proceedings taken. which provides that a foreign bill of exchange. under Section 139. Ellenbogen alleged that the check was duly presented to the Polish National Bank but said bank refused payment for the reason that the defendant had no money on deposit in the bank with which to pay the check. No. 101163. She simply withdrew her funds from her drawee bank and transferred them to another to protect herself. presentment for payment is not required.Y. 1993 ~da~ FACTS: SUBJECT: 2 Post dated checks DRAWER: Nora Moulic DRAWEE: PAYEE: Corazon Victoriano Indorsee: SIHI -Nora B. MOULIC withdrew her funds from the drawee bank. which is simply bringing to the knowledge of the drawer or indorser of the instrument. 114 of NIL: When notice need not be given to drawer. -The checks were dishonored for insufficiency of funds. -Section 185 of the NIL provides that notice of dishonor is not required to be given to the drawer. She did not retrieve the checks when she returned the jewelry. and that if it is not so protested the drawers and indorsers are discharged.00) each who thereafter negotiated the checks to State Investment House. Inc. has not been accepted or has not been paid. Before their maturity dates. and that the party notified is expected to pay it. After withdrawing her funds.000. Bellosillo: Jan 11. she could not have expected her checks to be honored. which is dishonored for nonpayment. where he has no right to expect or 112 .MOULIC failed to sell the pieces of jewelry. if the drawer has no right to expect or require that the drawee or acceptor will honor the instrument and under Section 267 (which is only required in the case of foreign bills of exchange) is dispensed with by any circumstances which would dispense with the notice of dishonor. either verbally or by writing. On 20 December 1979. Supp. she was responsible for the dishonor of her checks. Notice of dishonor is not required to be given to the drawer in the following cases: (a) Where the drawer and the drawee are the same person. -The trial court dismissed the complaint because it was not pleaded that the draft was protested citing section 260 of the Negotiable Instruments Law. must be duly protested for nonpayment. (e) Where the drawer had countermanded payment. so she returned them to Victoriano before maturity of the checks. appearing on its face to be such. MOULIC'S actuations leave much to be desired. although MOULIC avers that no such notice was given her.

Mexican currency. Disposition: The judgment of the lower court is affirmed 113 . When the said abaca was stored by Tan Tonguan in Buhang it became the property of the defendants (although it did not go through their hands). that inasmuch as the defendant had himself ordered the drawee not to pay the said bill of exchange. handing it to the plaintiff. wherein it was agreed that the plaintiff could transfer the shop at San Isidro to the Chinaman Tan Tonguan.C. the plantations of abaca (hemp) which the plaintiff then possessed in this province. it is my opinion that said draft or check should the plaintiff should therefore be relieved from the formalities of the protest for want of payment of the same. WON the plaintiff has a right to recover upon said bill of exchange without the same having been duly protested. 1907) ~mel~ FACTS SUBJECT: bill of exchange worth P800 DRAWER: Go Inqui. of Manila. 2. and the shop of Buhang tot he Chinaman Lim Joco and Tim Bico. -It follows that neither presentment nor dishonor was necessary in light of the facts pleaded by the plaintiff and therefore.NEGO . having failed to collect the amount. in a warehouse in Buhang. however.. While the plaintiff was in China. by direction of the defendants. that protest and notice of nonpayment under these conditions was unnecessary in order to render the drawer.Quevedo Camille Umali require that the drawee or acceptor will pay the instrument. and was property of the defendant at the time a complete delivery of the said abaca to the defendant. The plaintiff then. We believe. who in the mean time had returned from China. one being for the sum of about 600 pesos and the under these conditions. liable. Therefore. after being presented to the drawee in Manila. "J.30. or its value in the Conant. he did not cause the protest to be drawn up in the manner provided by the Code of Commerce.C. as provided for with regard to bills of exchange. they must look for payment of this sum to the Chinamen in whose favor the two shops were transferred. TAN LEONCO V GO INQUI Johnson.. and by reason by such transfers it was agreed between them that the said Chinamen to whom the two should had been transferred would become liable for the debt of the plaintiff directly in connection with the said two shops. the bill of exchange was used only as evidence of the indebtedness. as representative of the plaintiff’s mercantile co. 531 (Sept 13. protest was not required. YES -It is not disputed that the warehouse in which the hemp was deposited was the warehouse of the defendant. but as the defendants had suspended the payment of the same. for his management. ISSUE 1. -When the draft in question was presented by the plaintiff in Manila for payment. including the fees of the arbitrators appointed at its request of the respective the counterclaim presented by the defendant. and prior to his departure turned over to Tan Tonguan. Whether this draft or check is considered as a bill of exchange. presented the draft for payment in Manila. HELD 1. the plaintiff can not now be held to the liable for the 2. The lower court indicated a sentence in the cause against the defendant and in favor of the plaintiff for the sum of 800 pesos. The action was not brought upon the bill of exchange.. was loss of the defendant . the plaintiff was unable to collect the amount thereof. -In the years 1896 and 1897 the plaintiff entered into an agreement with the then head of the firm. 1462 and 1463. desiring to leave again for China. and the loss occuring thereafter. which he caused to be stored. Civil Code). YES -It was alleged that he said bill of exchange. of J. and costs. at the rate of P1. 2. The hemp became the property of the defendant upon the delivery thereof in the warehouse of the defendant (arts. and on the face of the draft they acknowledge having received the amount of said draft.. 8 Phil. PAYEE: Tan Leonco -In the year 1897 the plaintiff left the Philippine for China. and after storing the draft or check in question.390 odd pesos claimed by the defendants in their counterclaim. was not protested and that there is some question of the right of the p[plaintiff to recover upon said bill of exchange without the same having been duly protested. it is evident that the defendants can not alleged now that they had not received the amount of the said draft. Tan Tonguan worked the abaca and obtained 800 pesos worth of fiber. with interest 6 per cent from 3d day of march. or defendant in this case. WON defendant received the hemp so as to constitute consideration for the bill of exchange. We that the delivery of the hemp as above stated was duly made to the defendant and constituted a valuable consideration for the said bill of exchange or check." DRAWEE: Lim Uyco. without any fault of the plaintiff. 1901.

for the first indorsee might neglect to make demand. then indorsed to Judd. no demand was ever made of Whittlesey and no notice ever given to Dexter. **With respect to the necessity of demand on the maker by the indorsee. 2. or maker of the note. 2. It appears that no demand was ever made of Whittlesey. that the same steps should be resorted to for the collection of it. By drawing. and no notice ever given to the defendant for non-payment. he might create a new right in his indorsee to recover against the first indorser. by any of the indorsees of the note. and demand must be made by the indorsee of the drawer of the bill. NO. by a subsequent indorsement. and then. The indorsement of a bill or note after due is equivalent to drawing a new bill payable at sight. he incurs the same legal obligation. WON when a note is indorsed by the payee after due. but would lead to the practice of the grossest fraud. there can exist no serious question. To hold that the indorsee has a right to presume is not only repugnant to the principle that the indorsement after due is equivalent to drawing a new bill. the note never having been paid by Whittlesey ISSUES 1. HELD 1.Quevedo Camille Umali BISHOP V DEXTER 2 Conn. indorsed finally to Bishop -Dexter indorsed a negotiable note to Converse after it was due -after indorsement by Dexter. The indorser is a new drawer. has a right to presume that a proper demand had been made and notice given when it fell due. and notice given to the indorser. of course. as in cases of bills payable at sight. and has the right to insist. WON Dexter is liable. NO. a subsequent indorsee without knowledge that the first indorsement was made after the note was due. he became discharged of any liability on his indorsement. after the note had been lost by his negligence. 419 (1817) ~eva~ FACTS Maker: Wittlesey Payee/First Indorser: Dexter Indorsees: Converse. by which the liability of his indorser would be discharged.NEGO . as he had been the drawer of the bill originally. the reasonable notice to the indorser. and give notice. The indorsement of it afterwards is equivalent to the act of drawing a bill payable at sight. A bill may be negotiated after it has become due. 114 . -Bishop claims he has a right to recover of Dexter on his indorsement. and must be proceeded with as such. -That the note had been put in suit would not excuse demand and notice.

-The duty of the holder of a note toward the maker cannot be assimilated to the duty of a holder of a check toward the drawer: (1) The maker is primarily liable. failure of which discharges the maker from liability HELD: NO.NEGO . 1913. but is a promise to pay generally. Bank before it became due.W.L. (2) Sec. by the terms of the instrument. which later rediscounted the same note at First Natl. Bank did not present the note for payment at Chickasaw Bank on Dec. They argue that Sec. Bank demanded payment from the makers who declined. to pay the same for the account of the principal debtor.” due on Dec.87 puts upon the holder of a note payable at a bank the same duties as those upon the holder of an ordinary check.1. Bank to present it for payment at the Chickasaw Bank. when it fell due. Sec. Kilpatrick (makers) executed a note payable to the order of “ourselves. 176 S. His obligation as the maker is not a conditional promise to pay only at a special place. Bank instituted action against the makers in the lower court.R.87 should be interpreted in light of the other provisions of the NIL. -Although Sec. 87 should be interpreted to mean that a note made payable at a bank requires presentment for payment in order to charge the maker. at which an instrument is made payable. even though a place of payment is named.H. within a reasonable time otherwise the drawer is discharged from liability. 1038. Kilpatrick and L. which decided in its favor.87 authorizes a bank. No such duty rests upon the holder of a note with respect to presentment because the maker of a note. while the drawer is only liable after dishonor. ISSUES WON Sec.87 NIL) as their defense. The makers then filed this certiorari. -First Natl.29 and instead presented the note on Jan.186 places an absolute duty upon the holder of a check to present the instrument for payment at the place where it is payable.29. The note was indorsed in blank and discounted at said Chickasaw Bank. their defense being that they are discharged from liability on the note because of the omission of the First Natl. 1377 (1915) ~jat~ FACTS -Binghampton Pharmacy and Kilpatrick brothers W.Quevedo Camille Umali BINGHAMPTON PHARMACY V FIRST NATL BANK 131 Tenn. 711. Disposition Petition for certiorari denied.A. First Natl. 2 A. 1912 and PAYABLE AT the Chickasaw Bank and Trust. but the same does not apply to the drawer of a check or bill of exchange (3) Sec.70 excuses presentment of the instrument as to the maker of a note. its language must not be so expanded to mean that it converts the maker into a drawer. 115 . -First Natl. -Because Chickasaw Bank failed to pay. where the note was made payable. is absolutely required to pay. invoking chapter 94 of the Tennessee Act (Sec.

At maturity. he has his election to either pursue his legal remedies and bring an action on an assumpsit. payable 12 mos. The payee bank then assigned the principal note to Kroeger. executor of Mrs. 511.H. and that the payment thereof by the surety does not discharge the obligation. ISSUE: WON the payment of Kroeger as surety discharged the obligation HELD: NO -Under the Texas statute (Sec 119 and 121 taken together). Court held: where the surety pays the debt of the principal. and in either event he stands in the shoes of the original creditor as to any securities and rights of priority. or he can prosecute an action on the very debt itself. Fox died before its maturity. NOTE: the other issue in the case is regarding the right of the surety to collect from the principal what he has paid the creditor. Fox as principal and Kroeger as surety executed the above note. More than two years later Kroeger sued BJ Fox. or the obligation implied by law in his favor for reimbursement by the principal. payment by whom does not discharge the instrument.03. the party accommodated is excluded from those secondarily liable. 35 S. Mrs.W. 116 . Fox’s estate. from June 28.Quevedo Camille Umali CHAPTER VI: DISCHARGE FOX V KROEGER 119 Tex. Kroeger as surety PAYEE: Levi State Bank & Trust Company -Mrs.NEGO . Fox as principal and J.M. the payment by the principal debtor or by the party accommodated discharges the instrument. Kroeger executed and delivered his own note of the same amount to the payee. C. 1921 MAKERS: Mrs. By sec 121. (2d) 679 (1931) ~kooky~ FACTS: SUBJECT: promissory note for $769. but payment by a party secondarily liable. Disposition Affirmed. does not extinguish or discharge the debt. other than the principal debtor or party accommodated. The statute requires payment by the principal debtor to discharge a negotiable promissory note. on agreement with the payee.

The postdated checks from Casville were intended to cover the checks issued by Nell Co. The skidders were to be mortgaged as security. Each unit was to cost P485. The bank responded favorably. 1976.300 and adding the P100.Quevedo Camille Umali EQUITABLE BANKING CORP V IAC G.300 were all dishonored for having been drawn against a closed account. checked the status of the letter of credit and was informed by Equitable that no letter of credit had been opened and that the entire amount of P427. -The check was also initially negotiable and neither was it crossed. to Equitable.300. -Nell’s own acts and omissions were the proximate causes of its own defraudation. issued a check for the said amount in favor of Equitable even if the marginal deposit was supposed to be produced by Casville. -Nell Co. The domestic letter of credit was to be payable in 36 months and was to be opened within 90 days after date of shipment of the skidders. issued a check worth P427. discovered that the three checks amounting to P427. -Casals wrote Equitable to apply for two letters of credit (an on sight letter of credit for P485. Casville and Equitable Bank were solidarily liable to Nell Co. No.R.NEGO . Nell Co. -Casals requested that one unit be delivered to Cagayan de Oro before April 24.000 to clear the title of the Estrada property which was to act as security for the trust receipts issued by the bank.300 had been withdrawn. The postdated checks amounted to P427.. a real estate collateral and chattel mortgage of the equipment. The letter of credit was to be opened on or before June 30. Nell Co. and told the company’s sales engineer Claustro of his interest in purchasing a Garrett skidder. As worded it could be accepted as deposit to the account of the party named after the symbols A/C or payable to the bank as trustee or as agent for Casville Enterprises with the latter being the ultimate beneficiary.000) to cover its purchase of the skidders. HELD: NO -The check was patently ambiguous. who asked for cash payment for the skidders.300 payable to Equitable Bank. The crossing of the check and the stamping of the words “non-negotiable” were made by the bank and not by Nell. May 25.300 erroneously credited by Equitable to Casville’s account. The skidder was shipped on May 3. L-74451. that its application for a letter of credit had been approved by Equitable but informed the company that a sum of P400. Nell Co. The cash margin deposit was to amount to P327.000.” The check was sent to Equitable through Casals. attached to a letter informing the latter of the bank requirements. one of the many merchandise the company was selling. By making the check read “Pay to Equitable Banking Corp. Nell’s EVP. The first installement was to be due 180 days after shipment and interest was pegged at 14% p. so they assigned the Garrett skidder to the latter for the amount of P450. the trial court held that Casals. -Casals was referred to Javier. who caused the ambiguity.000 was needed to stand as collateral in favor of Equitable. -Upon presentation for encashment. Javier then agreed to have two units of skidders paid by way of domestic letter of credit instead of cash. -Casals and Casville recognized their liability towards Nell Co. Disposition Petition granted. -Casville sent three postdated checks to Nell Co.000 and cash marginal deposit of P300. -Casals informed Nell Co. a check amounting to P300.000 postdated August 4.” the payee ceased to be indicated with reasonable certainty. Casals then withdrew the amount deposited. 1988. To facilitate the transaction. The amount include P100. a business engaged in processing and procurement of lumber products) went to Edward J. considered the checks as partial payment for the skidder or as reimbursement for the marginal deposit due from Casals. for the amount of P427. Nell Co. 1976 – Casals handed Nell Co. 1976 together with all its accessories. a 36-month letter of credit for P606. stipulating a required 30% cash margin deposit. the total amount due to Equitable was P427.000 as partial satisfaction. The check was made payable to the “order of Equitable Banking Corp. The ambiguity was to be construed against Nell Co. Casals said that Casvile had a credit line with Equitable Bank. A/C of Casville Enterprises. Casals deposited the check in Equitable Bank and the teller accepted it as deposit in Casals checking account.300.000. 1976 followed by another check with the same date. 161 SCRA 518 ~aida rose~ FACTS -In 1975 Casals (who represented himself as general manager of Casville Enterprises.a. Nell Co. -In determining the liability of Equitable Bank to Nell Co. ISSUE WON Equitable is liable to Nell Co. -June 15. order of A/C of Casville Enterprises.. It simply meant that the same check would thereafter be no longer negotiated.000 needed for the Estrada property. 117 .

249. there is no testimony on record to show INDORSEE: Jessie P. the money in discharge of the note. to sustain her -Peyton. due April1.Quevedo Camille Umali IN RE HARNAUGH’S ESTATE 320 Pa. WON the maker of a negotiable instrument who It must be shown by preponderance of evidence. 118 . 40 which included the received by the indorsee. amount due on the note and certain other items payable by decedent to Flora Moore. Harbaugh agency and therefore appellee. 1919: decedent gave a check to Flora M.NEGO . 182 Atl. is received showing that the payee acted as the -April 4. administrator of Peyton retains possession of the instrument. claimant and decedent were all children of position. when title and possession of the instrument has Disposition Decision affirmed.17. -The findings of fact of an auditor will not be disturbed -Payment to the payee of a negotiable instrument unless they are unsupported by the evidence. -The auditor and the court below found that the before maturity. indorsee’s agent or that payment was in fact Moore for $13. HELD: YES. Harbaugh -In this case. 209. has indorsed the note to another. passed to another before maturity will not protect the maker. the surrounding circumstances show that money 1919 in discharge of the instrument actually reached MAKER: Decedent his hands he cannot recover merely because he PAYEE: Flora Moore. claimant indorsee holder had received payment may be relieved of liability on the note if evidence of the note in question. makes payment to the payee after the latter. must show that the indorsee received Flora Moore.677. 394 (1936) FACTS -If the holder receives payment through an agent or SUBJECT: P/N in the sum of $7. -Payment is always an affirmative defense and the ISSUE burden of proving it rests on the party asserting it.

the notice she filed in court. 910 (1917) FACTS mutilated envelope w/ the subject mutilated SUBJECT: negotiable promissory note for $500. Coleman. inoperative. NIL] of Lawrenceville. purpose of cancelling the instrument. Virginia. [motion for judgment -A cancellation made unintentional[ly] or under a on the pleadings? ^_^] mistake.” Plaintiff failed to sustain this burden. MAKER: Reps Jones. 119 . payable at the bank authority. Kate showed him a dismissed. There was name “Kate D. drawer a note for $500 with Reps Jones name on Disposition Judgment reversed. or without 1914 he saw in Kate’s room in a sewing machine authority. This -Kate’s brother Beverly (an ignorant man) gave a presumption can only be overcome by evidence vague and unsatisfactory testimony re: existence showing that such burning was done of the subject note. or w/o the authority of the holder is -Jury was waived. She moved for judgment on the basis of HELD: NO. He testified that sometime in “unintentionally. Kate presented a mutilated signature thereon appears to have been paper.E. Lawrenceville. allegedly dated 1 Jan 1915. now deceased PAYEE: Kate D. Evidence destroyed by burning. The presumption is that showed that these words and figures were written the burning was intentional and done for the by Reps Jones himself. 92 S. Coleman” and the words “five no explanation why the same have been hundred” had been inserted in ink. or under a mistake. who alleges that the cancellation was made The paper originally was a printed blank form of a unintentionally or under a mistake or without negotiable instrument note. Kate’s motion it. and that after Jones’ death. 86. administrators of [the estate of] Reps Jones.Quevedo Camille Umali JONES’ ADM’RS V COLEMAN 121 Va. date. 123. The mutilated remnant shows -It is assumed that the date and the signature were that the figures “500” and “365” as well as the originally upon the paper presented.NEGO . Case was submitted to TC judge. upon which there was neither date nor cancelled. [Sec. 365 days after mutilation of the paper. Said note waives the benefit of the -TC judge rendered judgment in favor of plaintiff Kate homestead exemption. Coleman. but where an instrument or any -To sustain the motion. Jones’ domestic servant ISSUE for 15-16 yrs WON plaintiff may recover on the basis of the -Kate presented his claim against WR Jones and Jack mutilated note Shell. (partly burned) paper. the burden of proof lies on the party signature. payable at Bank of -There was no attempt to explain or account for the Brunswick. both apparently destroyed by burning.

Reading Sec. been indorsed to Manchester. whether before or after they had the original holders did not discharge it. The legislature did not value about Nov. 885 (1915) FACTS -Sec. At bearer thereof.” PAYEE: Burton & Co. The rights of transferor. The note debtor becomes the holder of the instrument at or was delivered to plaintiff Schwartzman in after maturity in his own right”. Parsons payment of money. and delivered the to make a radical change in the general law as same to the payee for value. Post paid $2. for $800 payable to the order of Burton is apparent that it was never the legislative intent & Co. The payment was made on the condition fraud or mistake.675. the paper demanding payment of it.000 payable Instruments Law provides that a negotiable to his own order on demand. contemplate making so vital a change in the law. in “his own right”. either before or after the transfer.” the conclusion of the case. 474. before the note November 1. absolutely required to pay the same. 93.NEGO . It does not include a holder in due course. 1911.W. Burton (the course. 1910. 87 NYS 872 (1903) FACTS Ratio Subdivision 5 of Section 200 of the Negotiable -Defendant Post executed a note for $5. SCHWARTZMAN V POST 94 App. Subsection 4 reads “by any other act 1910. 1. HELD: NO. it 33. paper. 1910. of negotiable paper. or the did not allege that he was the holder thereof. & a 3rd party paid him. & he & Postawalsky were members. of their note payable to Parsons. that the note for $5. for $800.A. by the terms of the instrument. but as Post had possession of the same. transaction was to pay the note. with the to a negotiable instrument to defeat the title of an understanding between the parties that this innocent holder for value in due course. on -Payment by Parsons to Burton & Co. ISSUE:WON there was discharge (payment) of the -It would injuriously affect the value of commercial instrument. is discharge thereof.000 be surrendered to him. must be necessarily limited -Manchester is suing Parsons for payment. 119. discharged.” In his own right – merely excludes such a case as that ISSUE of a maker acquiring the instrument in purely a WON the instrument has been discharged representative capacity. the general purpose of the NIL. -The elements constituting what a holder in due -Negotiable paper in the hands of a holder in due course is. by putting it on a plane with simple contracts for the payment of money. 84 NYS 922. and the rights of an HDC must be course is not discharged by payment made to his considered in construing Sec. Div. could not defeat collection by an delivery of the Colts was on June 3. 18 months from date. for argued by Parsons. payment of his interest in a partnership of which Reasoning Post was the maker of the note. a bona fide assignee of such a note. 120 .750. Va.. 33. almost innocent bystander for holder for value who a year after the indorsement of the note to acquired it in due course. 119 of the NIL describes how a note may be SUBJECT: promissory note executed on Sept. indorsed by him. in order to effect a discharge Burton & Co. Manchester. -June 3. in due -The uncontradicted testimony of L. DEFINITIONS: -Schwartzman sued Post for the balance due on the Holder – Sec. HELD: YES Disposition Judgment reversed. 2: “Holder means the payee or indorsee note. It was surrendered to -Subequently. his instrument is discharged “when the principal father and by defendant Postawalsky. The negotiated it. 84 S. 3: “The dismiss the complaint on the ground that the person ‘primarily’ liable on an instrument is the surrender of the note to defendant constituted a person who. for value.E. and the balance -The acts which will discharge a simple contract for was to be paid for the execution and delivery by payment of money.W. indorsed to Manchester -This provision must be interpreted with reference to -L. would be brought by the literal interpretation -The note was negotiated to Manchester (plaintiff). 4. are not affected by the equities of the surviving partner of Lee Whorton) is that it had maker. and therefore the payment to became due. primarily liable thereon. Parsons to such acts as relate to and affect the holder of put up the defense of payment. & he became the “holder” thereof without $500. defendant moved to Person Primarily Liable on Instrument – Sec. 1910. Disposition Judgment is affirmed. 1911: Parsons sold and delivered to the as to permit equities between the original parties payee some Percheron Colts for $1.Quevedo Camille Umali MANCHESTER V PARSONS 75 W. Parsons executed his negotiable note on Sept. which will discharge a simple contract for the MAKER: L. he of a bill or note who is in possession of it.

we are constrained to hold that the renunciation.Quevedo Camille Umali McGLYNN V GRANSTROM 168 Min 164. 121 . In S119 and 120. which speaks of discharge. so is the indorser. renunciation should be in writing. which speaks of renunciation. S122 intended to deal only “with the formal and express release of common law” while Sec 119 was intended “to continue in effect other recognized methods of discharging obligations of this character” -In these cases. which under S120 must be in writing. -Gorin v Wiley: S122 does not apply to novation which discharged the makers of a note. it will be without consideration. Under S122. So. And according to Sec 120 of the NIL. if the maker is discharged. -Hall v Wichita: S122 inapplicable to an oral novation. -McGlynn relies on Sec 122 of the NIL. saying that such renunciation must be made in writing and thus the contract did not have an effect of releasing the maker from its obligation. why the need to change the terminology between the two? -Examining the instances in S119 and S120.NEGO . Ordinarily. no requirement exists. Since renunciation and discharge are separated. If there was an intention to apply the requirement of writing to S199 and 120. It was adopted by the English Bills of Exchange Act.obligation by a bill of exchange could be voluntarily remitted by the holder without consideration. where the written requirement was added. should be distinguished from Sec 119 and 120. particularly S119 and S120. is one accomplished by the unilateral act of the holder. The principle was approved by Foster v Dawber and it was held there that it applies to bills and notes. it would be radical and impractical to require writing in the discharge of the instrument. McGlynn denied liability and said that the payee was a party to an oral contract between the maker and third parties which discharged the maker from liability. 210 NW 892 (1926) ~monch~ FACTS SUBJECT: Promissory note MAKER: not named PAYEE: McGlynn INDORSERS: Granstrom -The action was brought by payee McGlynn against indorser Granstorm for recovery of the note. In that form and meaning it came to our uniform statute. it can be seen that the requirement in S122 was intended to apply only to renunciation and not extend to discharge in S199 and S120. Reasoning -Sec 122. but not always. -History: French law . ISSUE WON the oral contract released the maker (and thus the indorser too) HELD: YES -The requirement of writing in Sec 122 pertains only to renunciation. That meaning cannot be expanded without impringing upon the intended effect of other provisions of the statute. There was also no delivery of the note to the maker. it suggests that one is different from the other. -The lower court ruled in favor of the indorser. It does no apply to Sec 119 and 120 which talks about discharge.

-The words “discharge by a prior party must be given its common and accepted meaning. Audrey Daily. Upon presentment. the burden of proof lies on the party who alleges that the cancellation was made unintentionally or under a mistake or without authority. ROBERTS V CHAPPELL 63 Ohio Apple 397. The latter indorsed it to Roberts. ISSUE WON Chappell was discharged HELD: NO -The discharge of a prior party referred to is a discharge by an act of the holder and not a discharge accomplished by operation of law.Quevedo Camille Umali McCORMICK V SHEA 99 NY Supp. -The burden of proof was with the plaintiff Disposition: Judgment affirmed. Lewis Daily PAYEE/INDORSER: Chappell HOLDER: Roberts -George Daily. The rule relating to sureties becomes important since the rights and duties of sureties correspond to that of indorsers. the effect would only be to release the indorser as a person secondarily liable. Also. Since he failed to do so. ISSUE Who bears the burden of proving the cancellation without authority? HELD -A cancellation made unintentionally or under a mistake or without the authority of the holder is inoperative. The estate has now been administered and closed. the note was dishonored. This interpretation is in accord with the Ohio law relating to suretyship. but where an instrument or any signature thereon appears to have been cancelled. 26 NE 2d 930 ~rean~ FACTS SUBJECT: Promissory note MAKER: George Daily. Reasoning . -Chappell bases his claim on S8225 of the General Code which says that a person secondarily liable on the instrument is discharged by the discharge of a prior party. Chappell should be discharged. plaintiff claims that even if he did agree.NEGO . Lewis Daily executed a note for S237 payable to the order of Chappell. Roberts should have presented the note to the administrator. Defendant claims that the cancellation was part of their claims against each other while plaintiff claims that the cancellation was not authorized and that there was no consideration for such cancellation. Roberts sued Chappell -Defense of Chappell: No claim against the estate of Lewis Daily (now dead) was filed by Roberts. Prior to the enactment of the law. such meaning refers to a discharge by an act of the holder and not a discharge accomplished by operation of law.Romero case: discharge in the NIL contemplates some affirmative act by the holder and does not contemplate passive conduct. 122 . 467 (1906) ~ice~ FACTS SUBJECT: Promissory Note MAKER: Thomas Shea PAYEE: John McCormick INDORSER: Annie Shea -Before maturity Annie Shea as indorser was cancelled through the representative of the attorney of Shea in the presence of McCormick. Audrey Daily. Under such law. mere failure to claim of a creditor against the estate does not discharge the surety.

the holder has his right of recourse upon dishonor that is failure to pay.” -This section is without direct application to a party to the instrument who has voluntarily waived presentment of payment. -Corley sued French and other indorsers.” Under this section. in the instant case. The maker had funds on deposit in this bank at the date of maturity of the note sufficient to pay it. but without the right to interpose the defense based upon want of presentment. such ability and willingness are equivalent to a tender of payment upon his part.” So. presentment was not necessary to charge the maker. The other indorsers were discharged in bankruptcy. -While the effect of the waiver was to make the indorser liable without the necessity of presentment. Dispositive CA affirmed. HELD: YES. In the present case. His obligation by virtue of the waiver became absolute and unconditional with respect to defenses so grounded. or those as to whom. the prescribed steps have been taken.70 which states that: “If the instrument is. Co. 123 . it is equivalent to an order to the bank to pay the same for the account of the principal debtor thereon.87 provides: “Where the instrument is made payable at a bank. an immediate right of recourse to all parties secondarily liable thereon accrues to the holder. by its terms.NEGO . The maker was later adjudged bankrupt. -BUT while there is evidence that the maker had funds in the bank at the maturity of the note (to show “ability”. in the meaning of this term as used in Sec. not having so waived. and these element must concur to be equivalent to a tender of payment upon his part. The note was not presented at this bank on the day of maturity nor thereafter.500 MAKER: Volunteer Mfg. and such tender might have constituted such “a valid tender of payment made by the prior party” as would have operated to discharge the indorser. which discharged the indorser. a constructive tender would have accrued as to him. payable at a special place and he (the person primarily liable) is able and willing to pay it there at maturity. by which it is provided that one so liable only is discharged “by a valid tender of payment made by a prior topic”. et al. 672. it is both the right and the duty of the bank to pay the note from the funds of the maker on deposit with it. and that constructive tender by the maker “primarily liable” took place under the provision of Sec. However. there is no evidence of “willingness” on the part of the maker to have such application made of its funds of deposit. Thus. against those primarily liable. despite his waiver.Quevedo Camille Umali CORLEY V FRENCH 154 Tenn. and against those secondarily liable who have waived presentment. 513 (1927) ~eva~ FACTS SUBJECT: Note for $2. without presentment. and was made payable at the American National Bank. (ON THE TOPIC) -Defense insists that he is “secondarily liable” only. -Every indorser who has waived presentment is liable to the holder without reference to presentment. PAYEE-HOLDER: Corley INDORSERS: French Nichol. the bank has the right to so apply its depositor’s fund only when the bank is the place of payment and the payee and holder of the instrument as well. French did not become technically or strictly “primarily” liable (CA found French liable saying that he became primarily liable). while under Sec70. notice and protest. if it appears that the maker had been both able and willing (as does not appear) to pay the note at the bank named therein at maturity. -Sec. -Note contained a waiver of presentment and notice. -Nichol was held liable. No steps need be taken by the holder upon maturity to charge the waiving indorser. without presentment. and whether proceedings on dishonor be taken or not. -The Negotiable Instrument Act provides that “when the instrument is dishonored by non-payment. ISSUE WON French is liable on the note as indorser.120. -Defense: discharge by constructive tender of payment and by laches in failing to collect from the maker. no tender was made by or on behalf of the maker primarily liable on the instrument which operated to discharge the indorser. who engages that it shall be paid according to its tenor. French continued to be secondarily liable. 294 S.W.

the surety is thereby discharged. Penta inquired of Maglione whether the note and mortgage have been paid. -Some months later. 413. A subsequent foreclosure (on the mortgage) was instituted by Maglione.Quevedo Camille Umali MAGLIONE V PENTA 266 Mass. -As an indorser. 165 N. Maglione said that he had a satisfactory arrangement with the maker-mortgagor.E. -Maker defaulted so Maglione sued indorser Penta -Jury found that Maglione had entered into a valid and binding agreement with maker to extend deadline of note ISSUE WON Penta being secondarily liable for the note. But he dropped the foreclosure suit (mortgagor paid $300). Penta indorsed the note and assigned the mortgage to Maglione.NEGO . is discharged from liability in lieu of Maglione’s agreement with maker-mortgagor HELD: YES -If the plaintiff made a valid and binding agreement with the makers of the note extending the time of payment without the knowledge and consent of the surety. 124 . But the jury found that there was a valid and binding agreement between Maglione and the makers thereby discharging Penta from his liability. 424 (1929) ~javi~ FACTS SUBJECT: a note secured by mortgage MAKER/MORTGAGOR: unnamed PAYEE /INDORSER/DEFENDANT/: PENTA INDORSEE/HOLDER/PLAINTIFF:MAGLIONE -Penta is a payee of a note secured by mortgage. Penta was secondarily liable.

whereby they jointly severally to pay plaintiff PBCom a certain sum and severally guaranteed the prompt payment on arising from ordinary loans.000. 1980.00) from PBCom. MICO filed with PBCom an grant of a discounting loan/credit line in the sum application for a domestic letter of credit. Chua Siok Suy. Charles Lee requested for another evidenced by the corresponding bank draft discounting loan/credit line of Three Million Pesos issued for the purpose. Hundred Sixty-Three Pesos and Ninety Centavos -On July 14. Mariano Sio. bills of exchange. Feb 1. MICO METALS CORP v. of Communications (PBCom) requesting for a -On two occasions. For failure of petitioner MICO to pay prompt payment on due dates or at maturity of the obligations incurred despite repeated overdrafts.00) for the corresponding irrevocable letters of credit was purpose of carrying out MICO’s line of business approved. the proceeds of all the loan with prayer for writ of preliminary attachment availments were credited to MICO’s current before the Regional Trial Court of Manila.600.06) representing its trust was intended for the expansion and receipts liabilities to private respondent.441. De Leon. bills of plus legal interest until fully paid. extrajudicially foreclosed MICO’s real estate and other obligations of every kind and nature. Charles Lee. 1979. and commercial invoices to enable the latter to Mariano Sio. Mariano Sio. withdraw the goods from the port of Manila. denied all the allegations of the complaint filed by Charles Lee. then demanded the settlement of the aforesaid Upon approval of the said application for loan. 1982 under a promissory credits was then issued by PBCom with cables note. CA and PBC 375 SCRA 579. 2002 FACTS (hereinafter referred to as petitioners-sureties). Jr. in his (P5. 1979 Charles Lee. the corresponding letter of was made on May 21. To induce the -Petitioners (MICO and herein petitioners-sureties) PBCom to increase the credit line of MICO.000.Quevedo Camille Umali CHAPTER VII: OTHER FORMS OF COMMERCIAL PAPER LEE. promissory trust receipt transactions granted by the plaintiff notes. The of Three Million Pesos (P3.663. demands. necessary documents such as the bills of lading -On March 26. credit.000. MICO executed in President and General Manager. In executed on May 16. promissory notes. Hence. the last renewal of which corporations and thus. MICO availed of the additional loan of Four however. favor of PBCom a corresponding trust receipt. MICO availed of the first loan of PBCom. petitioner Charles Lee. obligations from herein petitioners-sureties who. Chua Siok Suy. As in past transactions. MICO caused the open a foreign letter of credit in favor of various same to be renewed. trust receipts. 1980. PBCom turned over to MICO the Metro Manila. 1979 a Deed of Real Estate all the transactions involving foreign letters of Mortgage over its properties situated in Pasig. checking account with PBCom. as President of of any kind and nature for which MICO may be MICO wrote private respondent Philippine Bank held accountable by PBCom. the latter made a demand petitioners jointly and severally. discounts. trust receipts upon opening letters of credit and trust receipts. 1979. -A petition for review of the decision of the CA executed another surety agreement in favor of ordering defendants-appellees jointly and PBCom on July 28. MICO likewise had another capacity as president of MICO.00).000. private respondent PBCom letters of credit. MICO’s own initiative. On three occasions MICO applied for authority to Upon maturity of the loan. respondent PBCom. guaranteed the for payment.On credit was negotiated and accepted by MICO as the same day. One Million Pesos (P1.000. agreements.NEGO . PBCom modernization of the company’s machineries.90). exchange. refused to acknowledge their Million Pesos (P4. letters of credit and due dates or at maturity of overdrafts. in their personal capacities executed a Surety -Upon maturity of all credit availments obtained by Agreement in favor of PBCom whereby the MICO from PBCom. Alfonso Yap and Richard Velasco. PBCom filed a complaint -As per agreement.00) from PBCom for the purpose of merchandise was paid.000.000. PBCom in its correspondent bank’s New York -As security for the loans. Two more loans to complete the three sent to the beneficiaries advising that said million were availed by MICO under the same beneficiaries may draw funds from the account of terms. drafts. wrote PBCom standing obligation in the sum of Four Hundred and applied for an additional loan in the sum of Sixty-One Thousand Six Hundred Pesos and Six Four Million Pesos (P4. mortgage.000. letters of credit. Thereafter.00) as evidenced by a obligations to PBCom under the surety promissory note.000. drafts. discounts. Aside from the unpaid balance of Five for which MICO may be held accountable by Million Four Hundred Forty-One Thousand Six PBCom. was executed in favor of -On March 26. After the suppliers of the (P3. MICO through its ViceOffice. Richard Velasco and Alfonso Co was not granted the alleged loans and neither did 125 .000. trust receipts and all other obligations -On March 2. and alleged that: a) MICO Alfonso Yap. the domestic letters of as well as to maintain its volume of business. The loan Centavos (P461.

to support its allegation that the loan transactions. the party who has the burden of proof upon an issue may be aided in establishing his claim or defense by the operation of a presumption. among others. however. Irrevocable letter of credits. the party having the burden of proof must establish his case by preponderance of evidence. apart from its bare denials. are satisfactory if uncontradicted: a) That there was a sufficient consideration for a contract and b) That a negotiable instrument was given or indorsed for sufficient consideration. b) it must be signed by the maker or drawer. Rule 131 of the Rules of Court the following presumptions. In ruling for herein petitioners. As observed by the Court of Appeals. Petitioner MICO did not proffer a single piece of evidence. Under Section 3(r). petitioners should have presented credible evidence to rebut that presumption as well as the evidence presented by private respondent PBCom. Hence. Under Section 3. -The above-cited documents presented have not merely created a prima facie case but have actually proved the solidary obligation of MICO and the petitioners. expressed differently. the corresponding real estate mortgage and the surety agreements signed concededly by the petitioners-sureties are null and void. drafts. During the trial of an action. a similar presumption is found in Section 24 of the Negotiable Instruments Law which provides that every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party for value. not negotiable instruments. as sureties of MICO. -CA reversed -Petitioners contend that there was no proof that the proceeds of the loans or the goods under the trust receipts were ever delivered to and received by MICO. because the presumption stands in the place of evidence unless rebutted. While the presumption found under the Negotiable Instruments Law may not necessarily be applicable to trust receipts and letters of credit. aside from their bare denials petitioners did not present sufficient and competent evidence to rebut the evidence of private respondent PBCom. Hence. real estate mortgage including the surety agreements were all void or nonexistent for lack of cause or consideration. or.Quevedo Camille Umali it receive the proceeds of the aforesaid loans and since no loan was ever released to or received by MICO. e) it must be payable to order or bearer. The effect of a legal presumption upon a burden of proof is to create the necessity of presenting evidence to meet the legal presumption or the prima facie case created thereby. and f) where it is a bill of exchange. On the other hand. all the documents involved therein. and which if no proof to the contrary is presented and offered. Negotiable instruments which are meant to be substitutes for money. but by the presumption the one who has that burden is relieved for the time being from introducing evidence in support of his averment. Letters of credit and trust receipts are. will prevail. The burden of proof remains where it is. 126 . inasmuch as no consideration ever passed from PBCom to MICO. letters of credit and trust receipts were issued allegedly without any consideration. But drafts issued in connection with letters of credit are negotiable instruments. by the probative value which the law attaches to a specific state of facts. A presumption may operate against his adversary who has not introduced proof to rebut the presumption. the drawee must be named or otherwise indicated with reasonable certainty. such as the promissory notes. the presumption that the drafts drawn in connection with the letters of credit have sufficient consideration. in favor of respondent PBCom. Negotiable instruments include promissory notes. Rule 131 of the Rules of Court there is also a presumption that sufficient consideration was given in a contract. d) it must be payable on demand or at a fixed or determinable future time. the trial court said that PBCom failed to adequately prove that the proceeds of the loans were ever delivered to MICO. The drafts signed by the beneficiary/suppliers in connection with the corresponding letters of credit proved that said suppliers were paid by PBCom for the account of MICO. The trial court said that the lack of proof as regards the existence of the merchandise covered by the letters of credit bolstered the claim of herein petitioners that no purchases of the goods were really made and that the letters of credit transactions were simply resorted to by the PBCom and Chua Siok Suy to accommodate the latter in his financial requirements. -Private respondent PBCom presented the following documentary evidence to prove petitioners’ credit availments and liabilities: Promissory Notes. bills of exchange and checks. ISSUE: WON the proceeds of the loans and letters of credit transactions were ever delivered to MICO HELD: YES -In civil cases. real estate mortgage.NEGO . -The trial court gave credence to the testimonies of herein petitioners and dismissed the complaint filed by PBCom. must conform to the following requisites to be considered as such a) it must be in writing. trust receipts. c) it must contain an unconditional promise or order to pay a sum certain in money. The letters of credit show that the pertinent materials/merchandise have been received by MICO.

ISSUE WON evidence of fraud practiced by the railroad company to whom these bonds were delivered.NEGO . being due and unpaid. Commonwealth of Pennsylvania PAYEE: PEC or bearer BEARER: Hackett -Legislature of Pennsylvania authorized Mercer’s commissioners to subscribe to stock of PEC. The instruments were elegantly engraved. (20yrs after date). Hackett sued the county of Mercer. and authenticated by the county seal conspicuously put. by Hackett. intended to pass by manual delivery. and to have qualities of negotiable paper. the folly of county ofiicers. When a corporation covenants by these means and obtains funds for the accomplishment of the useful enterprises of the day. and through it to inspire confidence. with such external indications as were calculated to arrest the eye. And the coupons. for some technical reason. however. annually… upon delivery of the coupons severally hereto annexed … the faith. or the fact that they were negotiated at less than their par value. if the necessities of commerce require that they should be so. The pertinent obligatory part. which sum said county agrees to pay. The act. after they have been negotiated and have come into the possession of bona fide holders Disposition Judgment affirmed. credit and property…” part and declared that the instruments were on their face complete and perfect. or transferred by the PEC at less than par value. bona fide and for value paid. It was signed by the Mercer commissioners. where the railroad if built would pass through their county and benefit it. Being issued by States and corporations they are necessarily under seal. credit and property of the County of Mercer are hereby solemnly pledged. under the authority of an act of Assembly of this Commonwealth…” -A number of bonds were obtained. 127 . 1863 ~brian b~ FACTS SUBJECT: Bonds issued for stock in Pittsburgh and Erie (Railroad) Company [PEC] payable in 20 years MAKERS: County of Mercer. to (PEC) or bearer. had a restriction wherein the bonds to be issued shall in no case be sold. read: “… the County of Mercer (Pennsylvania) is indebted to (PEC) in the full and just sum of ($1k). cannot be made payable to bearer. -Rightly or wrongly – w/ or w/o authority – the bonds to the extent of several thousand of dollars were issued. and their value depends mainly upon this character. attested by their clerk.Quevedo Camille Umali MERCER COUNTY V HACKETT US Supreme Court. But there is nothing immoral or contrary to good policy in making them negotiable. be received to defeat the recovery of Hackett HELD: NO -The species of bonds is a modern invention. exhibiting no defect in form of substance. it cannot be allowed to evade payment by parading some obsolete judicial decision that a bond. 83. -Circuit Court pointed out the “faith. the knavery of railroad “speculators” are pleas which might have just weight in an application to restrain the issue or negotiation of these bonds. but cannot prevail to authorize their repudiation. A mere technical dogma of the courts cannot prohibit the commercial world from inventing or using any species of security not known in the last century. assigned. -The epidemic insanity of the people. and by whom they were paid to bona fide holders for value. It was announced as issued for stock in the PEC. 1 Wall.

128 . An order or promise to pay only out of a particular fund is not unconditional. because large sums of money are now invested in securities of that sort.NEGO . if they are not negotiable. 36562 of said city ( local improvement fund district No. The bonds provide that: the holders shall have no claim against the city. 230 Pac. The court cannot decide these questions upon a matter of public policy. 131 Wash. Disposition The appellant will be entitled to the amount held by the city of Seattle for the exctinction of his bonds. appellant or respondent bank?) WON these bonds are negotiable instruments HELD: NO. Therefore the appellant is entitled to payment on the bonds. however. and to hold them as nonnegotiable would be to destroy their market value. and few persons would assume the risk incident to purchasing these bonds. 3032)… and not otherwise the holders or owners of this bond shall look only to said fund for the payment of either the principal or interest in this bond HOLDER: respondent bank (American Savings) -The bonds were stolen and came into the possession of the respondent bank. The respondent City of Seattle has the funds ready to pay the bonds. -Negotiable instruments must contain an unconditional promise or order to pay a sum certain in money. Where the law is as plain as it is here. ISSUE (Who is entitled to the payment on the bonds. Therefore. are not negotiable. they are not negotiable instruments.Quevedo Camille Umali MANKER V AMERICAN SAVINGS & TRUST CO Washington SC. 406 (1924) ~mini~ FACTS SUBJECT: 2 local improvement bonds which were stolen from the appellant’s safety deposit box. which purchased it in due course of business. except from the special assessment made for the improvement for which bond was issued the city of seattle promises to pay… or bearer… out of the fund established by ordinance No. 430. which provide for the particular fund out of which the bonds are to be paid. -Respondent bank argues that these bonds should be held negotiable as a matter of public policy. the decision must be governed by the law. these bonds.

and. It was obliged to create a sinking fund to provide for its purchase and redemption.E. the privilege given the obligor to redeem before maturity at certain dates. Disposition Decision of the Appellate Division reversed and that of the Trial Term affirmed. 164 N.500. that because of something contained in the mortgage he might be unable to collect the amount due him. a purchaser in due course from a thief may retain them. of a sinking fund. if registered.” -There is no modification of the promise to pay made in explicit terms. scanning the bonds. Because of differences in the words used. the title of the purchaser was put in issue. each instrument must be interpreted by itself. 1941 to bearer. or clauses. HELD: YES. to the registered holder does not affect the bonds’ negotiability. -The bonds in this case. There is no infallible test as to whether there is a modification of the promise. The trouble lies in its application to particular facts. “they are to be treated as negotiable. It only means that the bonds are to be issued not only upon the general credit of the corporation but upon the faith of some collateral mortgage. if registered. They are all equally secured by and entitled to the benefits and subject to the provisions of a trust mortgage and redeemable at 105% and interest at certain dates. Reasoning If in the bond or note anything appears requiring reference to another document to determine whether in fact the unconditional promise to pay a fixed sum at a future date is modified or subject to some contingency. Reference to the paper itself said to be negotiable determines its character.Quevedo Camille Umali ENOCH V BRANDON New York CA. The rule itself is not a difficult one. -The acceleration clause in case of the default. hence.NEGO . the manner in which notice may be given to such holders.” MAKER/ISSUER: The Manitoba Power Company. the obligation to create a sinking fund or the fact that the bonds are payable to bearer. The instrument must be considered as a whole and when the meaning is doubtful. the nature and extent of the security.Y. ISSUE WON the bonds are negotiable instruments. it continues: “All as provided” in the trust mortgage. except where registered. sentences. 249 N. Ratio The NIL deals with the form of the instrument – with what a mere inspection of its face should disclose. or. The bonds may become due in advance of maturity in case of default under the mortgage. the construction most favorable to the bondholder must be adopted. 1928 ~ricky~ FACTS SUBJECT: series of bonds for $7. They refer to the rights conferred by it upon the bondholders and limit and explain those rights.000 payable on Nov1. 129 . or. the rights of the holders of the bonds with respect thereto. The bonds contain a provision allowing it to be registered in the usual way. 263. It would never occur to a purchaser. and the terms and conditions under which said bonds are issued and secured. of acceleration of payment. The provisions all have to do with the trust mortgage. CONTROVERSY: It appears from the disposition of the case that some of these Manitoba bonds were purchased in due course from a thief. then the promise is no longer unconditional. 45. The lower court (called the Trial Term) held that the bonds were negotiable hence the purchaser in due course may retain them but the Appellate Division reversed. to the registered holder. They are speaking solely of security. and all persons are invited by the company to act accordingly. “to which reference is hereby made for a description of the property mortgaged and pledged. and notice. hence. or in the arrangement of paragraphs. speaking of possible redemption.

80124. payment at maturity of the draft. 160 (1954) FACTS ISSUE -PNB granted Araneta’s application for a commercial WON Araneta should be liable for the value of the letter of credit in favor of Allied National draft under the devauated exhange rate Corporation for $7. 1948. sale.92 and pay. 130 . quality and moisture content of the -The parties entered into contract of purchase and rice.55 “reimburse” the defendant bank in said manner. arranged w/ and because the minute the said bank cabled the LC transmitted by cable to Anglo-California Nat’l to its correspondent at San Francisco. addressee at San Francisco and second. balance. for $2. bank commission and miscellaneous banking First.92. -A draft for $4. But the LC. But one thing is Pan-Phil of its obligations. Sanchez FACTS to weight. payable on sight became exposed to liability thereon until it was against complete shipping docs w/ certificate as cancelled. PNB issued a might be drawn or paid upon the faith” of the receipt stating that it was received as partial plaintiff’s credit and that the plaintiff agreed to payment and that there was still a P10. Ltd. in case of non-shipment by Nov -It’s a banking practice for bank to collect commission 30.NEGO . as shipment was due to causes beyond its control – principal. California and/or assignee.Quevedo Camille Umali ARANETA V PHIL. jointly and alleged ground that its terms didn’t conform w/ severally.42. NATL RICE & CORN CORP V PAN-PHIL SHIPPING (CA) 51 O. Pan-Phil says nonof Naric. -PNB..0325 to $2. certain. check for P23. ISSUE: WON Pan-Phil is liable -Goods were shipped in good condition fr Ecuador. parties. the British pound was -Although the plaintiff’s application provides for devaluated from the rate of $4. -CFI dismissed complaint Disposition Appealed judgment is affirmed.37 in full payment of its -The application provides that the plaintiff promised indebtedness. on same date of contract. -Accdg to contract.155. this refers -On the first business day after the maturity of the merely to the time when the plaintiff was bound to draft. PNB debited Naric’s account.G. 25865. the tern the balance. is the contract between the the amount of the draft.727. Moreover. executed a bond. -By the time the draft matured. to answer for faithful performance by conditions of the contract.194. Pan-Phil shall pay/reimburse Naric for irrespective of WON beneficiary uses the LC.440.907. Pan-Phil’s against full shipping docs w/ certificate of quality liability to reimburse Naric for bank expenses is issued by representative of Naric. because svcs were actually rendered by charges in connection w/ contract.013. Barclay’s Bank -Araneta’s application for a commercial letter of credit. and RF Navarro w/ Julian Salgado that the rice wasn’t shipped bec Nicholas Graver (deceased). Hence. 11. bank in negotiation of LC w/ the bank’s -Naric applied to PNB for opening of LC.51. the former Bank irrevocable LC No. -The contract also provides that Naric agrees to open Mere refusal of beneficiary to use LC can’t be by cable an irrevocable letter of credit (LC) force majeur w/in meaning of the law. where Pan-Phil agreed to sell & deliver to -PNB charged Naric P12. NAT’L BANK 95 Phil. the equivalent of any “amount that Araneta re-transmitted the check. PNB sent Araneta a bill of P33. In accordance w/ this. can’t be changed by Naric or the expire not later than Jan 31. except force majeure beyond control of & charges for its svcs in opening of LC Pan-Phil.77 for the opening of NARIC 850 metric tons of Ecuadorian Fortuna the LC.533. The LC is in accord with the contract. in favor of inescapable. as sureties. paid. being irrevocable and in favor of a payable in New York negotiation of drafts to specified party. per 100 pounds net -Pan-Phil failed to ship the rice. PNB paid Barclay’s as granted by PNB. shipped weight final. of -Pan-Phil claims the LC was subsequently cancelled. HELD: YES -Contract calls for bond of P20K by Pan-Phil in favor -Naric complied w/ its obligations. against Araneta’s credit. currency. and agreed to pay at maturity in Philippine -The check was returned without acknowledgment. and not to the rate of exchange at which the on the same date Araneta forwarded to PNB a draft was drawn and presented or negotiated. bank w/o consent of the beneficiary and Pan-Phil. Nicholas Graver & Sons (agent of Pan-Phil). & Sons relinquished its interest in the LC upon Appellants obligated themselves. Pan-Phil. 5564.727.579. CIF Manila. -It is admitted that the PNB actually paid for the draft -PNB debited Araneta’s overdraft with the amount of in question was P33. 1947.13 was negotiated by PNB’s HELD: NO correspondent bank in London. No. Canilla rice at US $12. Araneta filed present “reimburse” requires the return of something complaint.

ISSUE WON it was the duty of the correspondent banks of BPI to take the necessary precaution to ensure that the goods shipped under the covering L/C conformed w/ the item appearing therein TF having failed to do so. secretary of the corporation. packing. value or delivery of the property purporting to be represented by documents. -Consequently. plus commission thereon. quality. quality.” as well as “for any deviation from instructions. JB Distributing Co. -Under the agreements. Disposition Judgment affirmed. Sept 16. condition. the defendants are bound by said established usage.Quevedo Camille Umali BPI V DE RENY FABRIC INDUSTRIES 35 SCRA 256. Co. -The lower court ordered the defendants to pay BPI w/ interest. the defendants have to comply w/ their covenant. -But even w/o said stipulation. president and Aurora Tuyo.NEGO . applied to the BPI for 4 irrevocable commercial letters of credit (L/C) to cover the purchase of goods such as dyestuffs from their supplier J. conditions. and thereafter. quantity. De Reny delivered to BPI peso marginal deposits as each L/C was opened. quantity. -As per bank regulations then in force. -Under the terms and conditions of their commercial L/C agreement with BPI. 131 . the corresponding banks debited the account of BPI w/ them up to the full value of the drafts presented by the JB Dist. in providing financing in int’l business transactions such as those entered into by the defendants. endorsed and forwarded all documents to BPI.” -Having agreed to these terms.” or for “partial or incomplete shipment. further payments were discontinued subsequently as a result of the chemical test wherein it was found that the goods that arrived in Manila were not dyestuffs but were colored chalks. defendants are liable for recoupment. -BPI then issued irrevocable commercial L/Cs addressed to its correspondent banks in the US with uniform instructions for them to notify the beneficiary thereof. character. -All the applications of the corporation were approved and the corresponding commercial L/C agreements were executed pursuant to banking procedures. or fraud by the shipper or anyone else in connection with the property the shippers or vendors and ourselves(purchasers) or any of us. do NOT deal with the property to be exported or shipped to the importer but deal only with documents (as per Art 10 of the Uniform Customs and Practices for Commercial Documentary Credits Fixed for the 13th Congress of Int’l Chamber of Commerce) -Having proved that there exists a custom in int’l banking and financing circles negating any duty on the part of a bank to verify whether what has been described in the L/Cs or drafts or shipping docs actually tallies with what was loaded in the ship. that they have been authorized to negotiate the latter’s sight drafts up to the amounts mentioned therein. for any difference in character. or failure or omission to ship any or all the property referred to in the Credit. De Reny through Aurora Carcereny (aka Aurora Gonzales). the aforementioned officers bound themselves personally as joint and solidary debtors with the corporation. if accompanied upon presentation. B. -De Reny refused to take possession of the goods so BPI caused them to be deposited w/ a bonded warehouse and sued De Reny. by full set of negotiable clean “on board” ocean bills of lading. -As each of the shipments arrived. delay. Castro. they are still liable because banks. no claim for recoupment could be had against the defendants HELD: NO. Distributing Co. default. De Reny made partial payments to BPI however. covering the merchandise appearing on the L/Cs (ie dyestuffs). 1970 ~’del~ FACTS -On 4 different occasions in 1961. the defendants agreed that BPI shall not be responsible for the “existence. or value of the property from that expressed in documents.

W. 1937.250. Inc. and securities which I/We may hereafter come into their possession on my/our account and whether originally deposited for sale custody or for any other purpose whatever or which may hereafter be deposited by me/us in lieu of or in addition to the Stocks. Santamaria said she made the claim to the bank for her certificate. the president of R.. she filed her complaint in this case on October 11. 780 (1951) ~jaja~ FACTS -Santamaria bought 10.J. 517. 89 Phil. 715. with the request that the same be cancelled and a new certificate be issued in the name of R. Santamaria placed an order for the purchase of 10.. to an imprisonment and to indemnify the offended party.J. Inc. “G. Campos & Co. or the total amount of P2. Inc. 1940. as shown by Exh. Taplin as trustee and nominee of the banking corporation. Exh.000 shares of the Crown Mines Inc.000 shares of the Crown Mines. 517 came into the possession of the HSBC because R.. Campos & Co. Inc. with R.000 Crown Mines shares and to get back Certificate No. was prosecuted for estafa and found guilty of this crime and was sentenced by the Manila Court of First Instance in Criminal Case No. 1938. Coscolluela then informed her that R. Inc.J. Santamaria went to R.J. 517. -At the time of the delivery of Stock Certificate No. Santamaria received it from Woo.J.. was declared insolvent. 54428. Campos & Co. Taplin was an officer of this institution in charge of the securities belonging to or claimed by the bank. 715 in lieu of Certificate No.00. -When Mrs. Inc. in the amountof P8. the bank’s representatives.. “E. on March 11. Uy-Tioco & Naftaly.000 shares of the Batangas Minerals through the offices of Woo. “I.” The buyer received Stock Certificate No. Mrs.J. As per this request the Batangas Minerals. -Mrs. -On March 11. Inc.20 as shown by receipt Exh.Quevedo Camille Umali SANTAMARIA V HSBC Bautista-Angelo. 517 to the latter as security therefor with the understanding that said certificate would be returned to her upon payment of the 10.” issued in the name of Woo UyTioco & Naftaly and indorsed in blank by this firm. though she did not remember the exact date. 1937. Inc. was sent by the latter to the office of the Batangas Minerals. and on July 12. In her interview with Taplin. was no longer allowed to transact business due to the prohibition order from the Securities and Exchange Commission. court granted this motion. Santamaria 10. to pay for her order of 10. The offended party and RW Taplin were among the witnesses for the prosecution in this criminal case No. According to certificate. manager of the R. she informed him that the certificate belonged to her and she demanded that it be returned to her. with the sole difference that her name was later written in lead pencil on the upper right hand corner thereof. Exh. Mrs. 517 and thereafter by Certificate No.014. Inc..J. 517. a brokerage firm and delivered Certificate No. Certificate No. bought for Mrs. represented by Certificate No. shares. “B. securities listed in its motion by virtue of the document of hypothecation. in the name of Taplin as trustee and nominee of the HSBC. Inc.NEGO . shares.000 shares of Batangas Minerals.. Inc. Inc. Mrs. Campos & Co. Campos. 715 were sold to the same bank by the Sheriff for P300. -Two days later. 54428. Defendants-appellants contend in the first place that the trial court erred in finding 132 . She was also informed that her stock certificate was in the possession of the Hongkong & Shanghai Banking Corporation (HSBC). to the HSBC. “E. Campos & Co.J. Inc.000 Crown Mines.” by the term of which pledged to the said bank all the stocks. a stock brokerage firm and paid therefore the sum of P8.J. -On June 13. (Exhs. 517 to R. Campos & Co. Inc.00 at the foreclosure sale authorized by said order. the HSBC asked permission in the insolvency courts to sell the R. 517. Coscolluela. Inc. “I” and “J”). 1937. 1936 a document of hypothecation. Campos & Co.J. Josefa T. This declaration was not contradicted by the adverse party.” Certificate No. Taplin then replied that the bank did not know anything about the transaction had between her and and R. issued Certificate No. Shares and Securities now deposited for any other purposes whatsoever. -In Civil Case No. On March 9.000 shares of Batangas Minerals. Inc. on March 12. R. Uy-Tioco & Naftaly. 51224.. Campos & Co..” R.J. 1937. have no actual market value. Campos & Co.041. Campos & Co. 1937. Santamaria failed in her efforts to force the civil judgment rendered in her favor in the criminal case because the accused became insolvent. the 10.000 shares of the Crown Mines. R. or else on March 13. and that he could not do anything until the case of the bank with Campos shall have been terminated. Josefa Santamaria. this certificate was in the same condition as that when Mrs.20 representing the value of the 10. Exh.J. At the trial both parties agreed that the 10. Inc.000 Batangas Minerals shares formerly represented by Certificate No.J. Campos & Co. Exh. Campos & Co. at . already indorsed by R. had opened an overdraft account with this bank and to this effect it had executed on April 16. but it was most likely on the following day of that when she went to Coscolluela for the purpose of paying her order for 10.. Inc..225 a share. “D” is the receipt of the certificates in question signed by one Mr.

Said indicium could at best give the impression that the plaintiff was the original holder of the certificate. Campos & Co. This certificate is what is known as street certificate. Inc.. the Bank would still have been justified in believing that R.J. is deemed quasi negotiable. Uy-Tioco & Naftaly and that said indorsement was guaranteed by R. -A mere claim of ownership does not establish the fact of ownership. Campos & Co. Even if said certificate had been in the name of the plaintiff but indorsed in blank. the holder was entitled to demand its transfer into his name from the issuing corporation.. Upon its face. Campos & Co. 715 133 . ISSUE WON defendant bank was obligated to inquire who the real owner of the shares represented by the certificate of stock was HELD: NO.NEGO .Quevedo Camille Umali that the plaintiff-appellee was not chargeable with negligence in the transaction which gave rise to this case. and as such the transferee thereof is justified in believing that it belongs to the holder and transferor. Inc. indorsed in blank.J.. cannot be considered sufficient reason to indicate that its owner was the plaintiff considering that said certificate was indorsed in blank by R.. which in turn indorsed it in blank. had the title thereto for the reason that it is a well-known practice that a certificate of stock. Inc. Disposition Decision modified in the sense of ordering the defendant to deliver to the plaintiff certificate of stock No. Inc. for it was given to the Bank pursuant to their letter of hypothecation. -The certificate of stock in question was issued in the name of the brokerage firm—Woo.J. The right of the plaintiff in such a case would be against the transferor.J. The Bank was not obligated to look beyond the certificate to ascertain the ownership of the stock at the time it received the same from R. The fact that on the right margin of said certificate the name of the plaintiff appeared written. granting it to be true. and was transferred in due course by the latter to the Bank under their letter of hypothecation. Campos & Co.

in effect. holder may be a bona fide purchaser. -Even if Campos and Hess did sell the shares. Capco ON DEMAND. 134 . and it is stolen from him. and are -Plaintiff is claiming ownership of 1. Ownership and noted upon the books of the corporation. on Macasaet the right to hold them as though they Note that both certificates were not returned on were his own. in the name of Madrigal. WON plaintiff had purchased the shares of stock acquired by an innocent purchaser for value. are in plaintiff's possession. coupled with and that the certificates were never sold or delivery. 189 SCRA 561. 1990 FACTS -TC in favor of Capco. The Administrator denied plaintiff's claim on the It doesn't bind Madrigal of Mitsui. Acknowledgment Receipt. would be CAPCO V MACASAET L-9088. The shares were registered. coupled with its 55k shares. failed to return the same. -This is the way to look at the case. -Santos claims he bought the shares from different except as between the parties. 2. CA did not err. owner in the books of Lepanto and whose -According to the Corporation Law.Quevedo Camille Umali DELOS SANTOS V McGRATH 96 Phil 577 (1955) FACTS the same.NEGO . the contemplated business tie-up. that he was a mere trustee. that Mitsui kept the as quasi-negotiable. it was returned later than cert26. Because of this. he lost over 300K. covering corresponding stock certificate. prejudice to such rights or defenses as the -Plaintiff couldn't produce as witnesses the persons registered owner may have under the law. director & executive VP of ISSUE: WON CA erred. HELD: NO. otherwise disposed of so that they were probably because the holder thereof takes it without stolen during the war. -Capco was a stockholder. delivery. is not valid except as between them and plaintiff. Capco signed the printed form at the -Capco demanded the return of his certificates. -He owned shares of capital stock of Monte Oro. irregular about Macasaet delivering the certificates -Capco filed a complaint saying that because of the to Feliciano for a consideration in connection with delay. in the sense that it may be certificates in its office in Manila until liberation. ground that the stocks were bought by Madrigal 2. NO in trust for and for the benefit of Mistui Busaan -Although a stock certificate is sometimes regarded Kaisha (a Japanese corp). Sept 13. The certificates except one. President of /assignment at the back of every stock certificate Monte Oro. It was proven that covered by several stock certificates issued in Mitsui never sold or otherwise disposed of the favor of Vicente Madrigal. a local mining company. When the owner/shareholder of these -Capco INDORSED and delivered his 2 stock certificates signs the printed form of sale certificates (02 and 26) to Macasaet. confers on another all trust and for safekeeping only to be delivered to the indicia of ownership of said certificates.. Macasaet replaced cert 26 with his own. WON stock certificates are negotiable instruments -The title of the true owner of a lost or stolen certificate may be asserted against any one HELD subsequently obtaining possession although the 1. Inc. of said shares was vested in the Alien Property Therefore.6 M shares of still. the alleged sale by Campos and Hess Custodian of the US by virtue of an order in 1945. CA reversed. As for the Capco's acts of indorsement and delivery conferred other certificate. the instrument is non-negotiable. -Even if the owner of the certificate has endorsed it in ISSUES blank. no title is 1. insofar as plaintiff is concerned. except from whom he bought the stocks because they if the circumstances properly call for application died in the war. the result. Macasaet received it with an without filling in the blanks provided for the name of ACKNOWLEDGMENT RECEIPT wherein he the transferee and name of atty-in-fact. It was not disputed stock of Lepanto Consolidated Mining Co. NO. the said acknowledged that he received said certificates in owner/stockholder. -Macasaet said that there was delay because Feliciano. instruments. It's -Certificates of stocks are considered "quasi-negotiable" total value was over 565K. Monte Oro Mineral. back of both certificates without filling in the blanks. there was nothing demand. However. who is the registered shares. of estoppel. -In the case at bar. the transfer shall not be valid. notwithstanding the the person to whom he entrusted the certificates. a share of stock indorsement in blank appears on the back of said may be transferred by endorsement of the certificates. transferred by endorsement. until it is entered persons (Campos and Hess) in 1942.

receipt has been issued for goods. Nor shall the warehouseman negotiable receipt shall plainly place upon it's face be obliged to deliver or be justified in delivering the by the warehouseman issuing it 'non-negotiable. deliver the receipt.92 each for deposited in the warehouse. would be rendered or right of stoppage in transitu shall defeat the nugatory rights of any purchaser for value in good faith to -Also. at his option.815. the negotiable may. any other interpretation would -Sec 49 of Act No. this appeal receipt was intended to be made subject to the ISSUE WON Felisa Roman's right over the 576 bales order of the depositor and therefore. a holder of the receipt who -There can be no doubt that if the quedan or the purchased it for value supposing it to be warehouse receipt in question is negotiable.' goods to an unpaid seller unless the receipt is first or 'not negotiable.NEGO . the CFI declared receipt. the receipt was not marked "non-negotiable. making such receipts notification to the warehouseman who issued such negotiable unless marked "non-negotiable. must 576 bales of tobacco superior to that claimed by be interpreted according to its evident intent -It is Asia Banking Corporation quite obvious that the deposit evidenced by the -Hence.69 total value. of tobacco is superior to that of Asia Banking -The instrument must be construed to mean that de Corporation Poli was the person authorized to endorse and HELD: NO. failure to do so. like any other document. for value received.953. It recited that the merchandise is cash. and it contains no other direct statement showing issued a negotiable receipt (quedan) covering 576 whether the goods received are to be delivered to bales of tobacco. 46 Phil. 1920. no seller's lien as well as the entire receipt.Quevedo Camille Umali ROMAN V ASIA BANKING CORP Ostrand." whom such receipt has been negotiated. de Poli.' In case of the warehouseman's surrendered for cancellation. been negotiable.777 bales of tobacco favor of Asia Banking Corporation is negotiable is from Felisa Roman not entirely free from doubt because the receipt is -Of the P78. 2138 provides: Where a negotiable mean that no one had such power and the clause. treat such receipt as vendor's lien of Felisa Roman cannot prevail over imposing upon the warehouseman the same the rights of Asia Banking Corporation as the liabilities he would have incurred had the receipt indorsee of the receipt. -De Poli became insolvent and insolvency proceedings -The SC held that it must be considered a negotiable were filed -In said proceeding. to the Asia Banking Corporation the bearer. the vendor's lien claimed by Felisa Roman on the -A warehouse receipt." 135 . whether Modern statutes have enlarged the negotiability of such negotiation be prior or subsequent to the warehouse receipts. de Poli paid P15.000 in not perfect. "por orden" instead of the balance "a la orden" or sujeto ala orden" of the depositor -On November 18. 705 (1922) FACTS -The question of whether or not the receipt issued in -Umberto de Poli purchased 2. or his order." receipt of the seller's claim to a lien or right of -Sec 7 of our Warehouse Receipts Act says: "A nonstoppage in transitu. negotiable. He executed 4 notes of P15. to a specified person.

These documents of title were delivered by Hale to the Beley Cotton upon receipt of checks of that company. took no better title than transferor. drawn on Union and Planters’ Bank. not indorsed by person to whom goods were deliverable. aggregating $33. Disposition No error in CA decision. They were not in negotiable form at all. Beley acquired no title by reason of the fact that its checks given for the cotton were dishonored. SOUTHERN PAC. and the negotiable warehouse receipt is the security for the loan. taking warehouse receipts. certiorari denied. 222 bales of cotton represented by warehouse receipts and bills of lading. unnamed Carrier: Southern Pacific Railway Company -how Bank of America (BA) obtained the warehouse receipts: the vendee fraudulently made SouthPac’s agents to deliver to them the crab meat without the production of the bill of lading (in violation of the condition that the crab meat should not be delivered until the bill should be surrendered). made 136 . SouthPac took the assignment of the bill of lading and draft for $37k. Re: THIRD LOT represented by bills of lading-The bills of lading in controversy had not been indorsed by Manget Bros. sold and assigned the bill of lading and sight draft for $37k to Pacific National Bank (PNB) Vendee: definitely not PNB. 23 Fed. could not pass a title which it did not have. Since the receipts we are considering had not been indorsed by the person to whose order the goods were deliverable. and the clearance certificates were expressly nonnegotiable. Re: SECOND LOT represented by warehouse receipts-The bank got no better title to the cotton represented by these warehouse receipts than was possessed by the Beley Cotton. and the bills of lading to drafts drawn by it on customers and deposited these drafts to the credit of its account in defendant bank. acquired no greater title than transferor. they could not be indorsed and negotiated by anyone else. when they came into the hands of the bank. except by an instrument to which the law gave negotiability. 939. Re: FIRST LOT represented by warehouse receiptsBeley Cotton did not undertake to negotiate these receipts to the bank. the checks for Hale were returned unpaid. Transferee of "order" warehouse receipts. procured clearance certificates. CO V BANK OF AMERICA District Court of Illinois.83. They were not in such shape that they might be negotiated by delivery. Under these circumstances. so that. Transferee of order bills of lading. exchanged said receipts with the Memphis warehouse. Beley’s credit with the bank had been exhausted by other checks. The clearance certificates recited on their face that they were not negotiable. (2)SouthPac had superior title over BA who obtained title from a fraudulent vendee -claims of BA: SouthPac ESTOPPED: (1) SouthPac’s agents wrongfully delivered the goods. which issued them for clearance certificates of that warehouse.. 200 SW 994 (1927) ~rach~ FACTS -Hale Co. 154 Tenn 689.738. not indorsed by person to whose order goods were deliverable. The Beley Cotton Company. HALE & CO V BELEY COTTON CO Tennessee SC. ISSUE: WON the bank acquired the title to the goods (being an innocent purchaser for value from Beley Cotton of the said documents of title) HELD: NO. the bank acquired no better title to this lot of cotton than the Beley Cotton Company possessed. *so SouthPac now wants to recover the goods from BA. Although Beley Cotton did indorse the receipts. the persons to whom the carrier had undertaken to deliver the goods. 1928 ~cHa~ FACTS Subject: crab meat from Japan. such indorsement by it was not effective for purposes of negotiation.Quevedo Camille Umali JOHN S. demanded from SouthPac to pay for it. issued by a Memphis warehouse. -how SouthPac had title over goods: PNB found out that the vendee fraudulently obtained the goods. however. sold to the Beley Cotton Co. the Beley Co. instituted replevin suit -claims of SouthPac: (1) Ono & Co’s title never passed to BA.. Vendee deposited goods in a public warehouse. warehouse receipts Shipper (presumably also the consignor): Ono & Co. BA not aware that vendee fraudulently acquired the goods. Beley Cotton then attached these clearance certificates. but.NEGO . and pinned the clearance certificates to the draft made on account of this lot of cotton and deposited with the bank. BA loaned the vendee $34k. the remaining warehouse receipts. All these checks were dishonored. -In exchange for warehouse receipts thus acquired by Beley Cotton. bill of lading.

is repealed by Code 1907 HELD: NO. the vendee persuaded the delivering carrier to surrender the goods. gave a chattel mortgage on his cotton crop to Yielding Bros. 41. but none the less a delivery consciously and voluntarily made. they were not received by the vendee as a result of a trespass. is entitled to the value of the cotton. and also such title to the goods as the depositor or person whose order the good were to be delivered by the terms of the receipt had or had ability to convey to a purchaser in good faith for value. The goods were not stolen.S. Subsequently. voluntary delivery. Said receipt was sold by Franklin for the full cash value of the cotton to W. BROWN MERCANTILE CO V YIELDING BROS. -It would be contrary to the established law to allow Southern Pac. no one would contend that he was a purchaser in good faith.. for its act (through its agent) made possible the procurement of the negotiable warehouse receipts and the sale thereof by the vendee Ratio. 137 . Brown.Quevedo Camille Umali possible the negotiation of the warehouse receipts (2) SouthPac knew at the time when it obtained the title from PNB that its agent wrongfully delivered the goods to the vendee and that the vendee assigned the warehouse receipts to BA for value ISSUE WON SouthPac could acquire the goods from BA HELD: NO. Sec. DEPT STORE SC of Alabama (1917) FACTS -Franklin. However. and took a negotiable receipt. -The purchaser whom the act protects is he who is entitled to assume that the carrier has not delivered the goods and will not thereafter deliver them except to a person who holds the bill of lading. induced by fraud. -The phrase “ or had ability to convey to a purchaser in good faith for value” means provided such person was such purchaser in good faith for value. but consent to delivery was fraudulently procured. which had no actual knowledge of the prior chattel mortgage. or by the existence of such facts as will create an estoppel against him to assert his title. It follows that the purchaser from the vendee stands in the position of the purchaser from any fraudulent vendee. and the mortgage herein. 3373. Reasoning. the recording of the mortgage operated as a notice of the contents thereof. providing for the negotiability of such warehouse receipts. having been duly recorded gave the purchaser a constructive notice so as to prevent him from being a purchaser in good faith. to prevail against a bona fide purchaser.) sued the purchaser of the warehouse receipt (W. Warehouse Receipt Act A person to whom a negotiable receipt has been duly negotiated acquires thereby – (a) Such title to the goods as the person negotiating the receipt to him had or had ability to convey to a purchaser in good faith for value.S. Brown) for $ 1.S.. or other tortuous taker of merchandise. a tenant farmer. which was recorded in the office of the probate judge of the county where said cotton was grown and stored. A thief can convey no title to a bona fide purchaser. whose rights by virtue of the doctrine of estoppel are well recognized as being superior to those of the vendor or parties in privity with him. -Under the provisions of Sec. Franklin stored the cotton in the Warrant Warehouse Co. ISSUE WON the Warehouse Receipts Act. Here. -Yielding Bros. Code 1907.050. No owner of merchandise may be deprived of title thereto. If the purchaser had actual notice. and (2) the direct obligation of the warehouseman to hold possession of the goods for him according to the terms of the receipt as fully as if the warehouseman had contracted directly with him. the value of the cotton.NEGO . The vendor is there stopped to assert its rights. true it is. as chattel mortgagee. a delivery within the apparent scope of the plaintiff’s agent’s authority. one who secures title to property by fraudulent misrepresentations may convey good title to a bona fide purchaser. by its fraudulent representations. The chattel mortgagee (Yielding Bros. convey a good title thereto. nor can a trespasser. For BA. who has purchased his title with full knowledge of the facts. Registration laws were enacted for the purpose of giving notice. That delivery was a conscious. except by his consent. W.

Judgment in favor of Griffin. filed intervention stating he loaned money to Whitehead and took the receipt as security in good faith and for value ($730). Whitehead hauled the beer to Fort Worth for storage in defendant Storage Company’s warehouse and received a warehouse receipt in his own name. as payment upon receipt of the goods. despite his good faith. 2d 250 (1941) FACTS -Dunagan employed Whitehead to haul beer from Houston to Big Springs.W. argues that Section 25 of the selling the products for three or four years. and gave him a check payable to Gulf Brewing Co. the person in-charge of the ranch of Luhrs WON Section 25 of the WRA includes an action of sold to Harrison four bales of cotton. Franklin was “a Receipts Act (Section 25 ). who was in possession of the beer only by virtue of his contract to transport it. LUHRS V VALLEY RANCH CO. Harrison. The whole purpose of the section is to protect the -Luhrs instituted and action in replevin to recover warehouseman who comes into possession of possession of the bales but the defendant the property from being liable to two parties. and held defendant’s negotiable HELD: YES.” not be compelled to surrender the seized Harrison was a purchaser in good faith. in replevin turn. ISSUE WON Griffin acquired rights to the beer HELD: NO -Article 5616 of the Uniform Warehouse Receipts Act provides that an indorsee of a negotiable receipt acquires such title as the indorser or depositor had (or the latter’s ability to convey to a purchaser in good faith and for value). providing that it could person whose act…would bind the owner. -Griffin. Griffin only received such title as Whitehead could have conveyed to a purchaser of the goods in good faith and for value. 1014 FACTS ISSUE -Franklin. delivered it to Valley Ranch for ginning and storage. 306. the cotton as the latter was running the ranch and on the other hand. Texas. INC SC of Arizona. 138 . could acquire no better title than Whitehead. 151 S.. P. warehouse receipts therefor. He had property until the receipts were either no reason to doubt the authority of Franklin to sell surrendered or impounded by the court . Defendants refused to deliver to plaintiff. Luhrs. under all the evidence. 27 Ariz.Quevedo Camille Umali DUNAGAN V GRIFFIN CA of Texas. Company alleged it was told Griffin was the owner and holder of the receipt. Griffin was interpleaded. WRA does not cover an action of replevin by the real owner of the goods. refused by virtue of the Uniform Warehouse Moreover.NEGO .

but was told that the quedans haed been sent to the defendant soon as they were received by Ranft. Ranft was indebted to HSBC. -Shortly after. First. that they were pledged by Ranft to the defendant bank to secure the payment of debt t bank. Together with the covering invoice.Quevedo Camille Umali 139 SIY CONG BIENG & CO V HSBC 55 Phil. and when the plaintiff's found that such was the case. The bank had perfect right to act. that such of the quedans were issued in the name of the plaintiff were duly endorsed in blank by the plaintiff and Ranft. or the payment of value. and it appears that in previous transactions of the same kind. ISSUE WON the defendant bank is a holder in due course HELD: YES. Second. the plaintiff filed its first complaint against the defendant. wherein it alleged that it had sold the quedans to the deceased for cash. but the plaintiff's understanding was that the payment would be made against the same quedans. When the quedans were negotiated. which indebtedness was partly covered by quedans.NEGO . the quedans were delivered to the bank in order to secure the debts of Ranftfor the payment of their value and from which it might be deducted that the said bank knew that the value fo the said quedans had not been paid when it was endorsed to them. but the entrusting of the receipt is more than the mere delivery of the goods. The importance of Sec 47 and Sec 41 is that if the owner of the goods permits another to have the possession or custody of negotiable warehouse receipts running to the order of the latter. that the 2 remaining quedans which were issued directly in the name of Ranft were also duly endorsed in blank to him. -Nothing in the record would compel the bank to investigate the indorser. despite breaches of trust or violations of the agreement on the part of the apparent owner. the quedans were sent to Ranft. it immediately demanded the return of the quedans. -TC rendered in favor of the plaintiff on the ground that the defendant bank could not have acted in good faith for the reason that according to the statement of his own witness. 598 (1932) FACTS -Ranft called at the office of the plaintiff to purchase hemp (abaca)and he was offered the bales of hemp as described in the quedans. but that the deceased had not fulfilled the conditions of the sale. quedans were paid on or 2 days after their delivery. demand had been made by the plaintiff on the defendant bank for the return of the quedans or their value. plaintiff filed an amended complaint wherein they changed the word 'sold' to 'attempted to sell'. it follows that on the delivery to the bank they were no longer the property of the indorser unless he liquidated his debt with the bank. In the mean time. it is a representation that the one to whom the possession of the receipt has been so entrusted has the title to the foods. Lter on. Third. without having paid for the hemp. . -TC decision is not tenable. Ranft died. it is a representation of title upon which bone fide purchasers for value are entitled to reply. -The warehouse receipt represents the goods. the plaintiff files a claim for the said sum in the intestate proceedings of the estate of the deceased. which was refused by the bank on the ground that it was the holder of the quedans in due course. or to bearer. Since the quedans were negotiable in form and duly endorsed in blank by the plaintiff and Ranft.On the date the quedans were delivered to the defendant. There upon. the quedans were in negotiable in form. Fourth.