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Chan Wan v. Tan Kim [G.R. No. L-15380.

September 30, 1960]

engrjhez

3 years ago

FACTS

Checks payable to “cash or bearer” were drawn by defendant Tan Kim and were all presented for
payment by Chan Wan to the drawee bank, but they were all dishonored. Defendant argued that plaintif
is a holder not in due course.

ISSUE

Whether or not a holder not in due course is barred from collecting the value of checks issued to him.

RULING

NO. It does not that simply because he was not a holder in due course Chan Wan could not recover on
the checks. The Negotiable Instruments Law does not provide that a holder who is not a holder in due
course, may not in any case, recover on the instrument. The only disadvantage of holder who is not a
holder in due course is that the negotiable instrument is subject to defense as if it were non- negotiable.

Metropol (Bacolod) Financing and Investment Corp v. Sambok Motors Company [G.R. No. L-39641.
February 28, 1983]

FACTS

Appellant Sambok added the words “with recourse” in the indorsement of a note. He argued that the
note contemplates a qualified indorsement.

ISSUE

Whether or not the contention of Sambok is meritorious.

RULING

NO. “Recourse” means resort to a person who is secondarily liable after the default of the person who is
primarily liable. Appellant, by indorsing the note “with recourse” does not make itself a qualified
indorser but a general indorser who is secondarily liable. The efect of such indorsement is that the note
was indorsed without qualification. A person who indorses without qualification engages that on due
presentment, the note shall be accepted or paid, or both as the case may be, and that if it be
dishonored, he will pay the amount thereof to the holder.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-39641 February 28, 1983

METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintif-appellee,

vs.

SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendants-appellants.

Rizal Quimpo & Cornelio P. Revena for plaintif-appellee.

Diosdado Garingalao for defendants-appellants.

DE CASTRO, J.:

The former Court of Appeals, by its resolution dated October 16, 1974 certified this case to this Court the
issue issued therein being one purely of law.

On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co.,
Ltd., in the amount of P15,939.00 payable in twelve (12) equal monthly installments, beginning May 18,
1969, with interest at the rate of one percent per month. It is further provided that in case on non-
payment of any of the installments, the total principal sum then remaining unpaid shall become due and
payable with an additional interest equal to twenty-five percent of the total amount due.

On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a sister company of Ng
Sambok Sons Motors Co., Ltd., and under the same management as the former, negotiated and indorsed
the note in favor of plaintif Metropol Financing & Investment Corporation with the following
indorsement:

Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. Notice of
Demand; Dishonor; Protest; and Presentment are hereby waived.

SAMBOK MOTORS CO. (BACOLOD)

By:

00 plus the legal rate of interest from October 30. (b) Ordering same defendant to pay to plaintif the sum equivalent to 25% of P15. Branch I. 1972 the lower court. NONILLO Asst. dismissed the case against Dr. on motion. 1973. judgment is rendered: (a) Ordering Sambok Motors Company to pay to the plaintif the sum of P15. the trial court rendered its decision dated September 12. 1969. Dr. so on October 30. defendant Dr. Sambok did not deny its liability but contended that it could not be obliged to pay until after its co-defendant Dr. the dispositive portion of which reads as follows: WHEREFORE. Villaruel has been declared insolvent.RODOLFO G.00 plus interest thereon until fully paid. and (c) To pay the cost of suit. Villaruel died. Sambok failed to pay.939. General Manager The maker. 1969 plaintif formally presented the promissory note for payment to the maker. on October 24. hence plaintif notified Sambok as indorsee of said note of the fact that the same has been dishonored and demanded payment. hence. Villaruel defaulted in the payment of his installments when they became due. 1 On plaintif's motion for summary judgment. . so on November 26. During the pendency of the case in the trial court. Villaruel pursuant to Section 21. 1969 plaintif filed a complaint for collection of a sum of money before the Court of First Instance of Iloilo.939. Villaruel failed to pay the promissory note as demanded. Rule 3 of the Rules of Court. Dr.

it will pay the amount to the holder. because by such indorsement. A person who indorses without qualification engages that on due presentment. appellant Sambok raising a lone assignment of error as follows: The trial court erred in not dismissing the complaint by finding defendant appellant Sambok Motors Company as assignor and a qualified indorsee of the subject promissory note and in not holding it as only secondarily liable thereof. dishonor. or both as the case may be. The words added by said appellant do not limit his liability. (b) that he has a good title to it. However. it agreed that if Dr.Not satisfied with the decision. the note shall be accepted or paid. dishonor. The efect of such indorsement is that the note was indorsed without qualification. A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note. Villaruel fails to pay the note. protest and presentment were an waived. 4 Appellant Sambok's intention of indorsing the note without qualification is made even more apparent by the fact that the notice of demand. that it only warrants the following pursuant to Section 65 of the Negotiable Instruments Law: (a) that the instrument is genuine and in all respects what it purports to be. protest and presentment. 2 Such an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided in Section 65 of the Negotiable Instruments Law already mentioned herein. he will pay the amount thereof to the holder. (c) that all prior parties had capacity to contract. . the present appeal was instituted. it becomes a qualified indorser that being a qualified indorser. 3 Appellant. appellant Sambok indorsed the note "with recourse" and even waived the notice of demand. and that if it be dishonored. by indorsing the note "with recourse" does not make itself a qualified indorser but a general indorser who is secondarily liable. but rather confirm his obligation as a general indorser. "Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily liable. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. (d) that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. it does not warrant that if said note is dishonored by the maker on presentment. plaintif-appellee can go after said appellant. The appeal is without merit.

the holder need not even proceed against the maker before suing the indorser.. JJ. SO ORDERED.Lastly. WHEREFORE.. Aquino.A. the decision of the lower court is hereby affirmed. 6 Consequently.. Separate Opinions ABAD SANTOS. concur. Concepcion. the lower court did not err in not declaring appellant as only secondarily liable because after an instrument is dishonored by non-payment. 5 His liabiliy becomes the same as that of the original obligor.. 5440 and dismissed by minute resolution. Makasiar (Chairman). Jr. J. is on leave. the person secondarily liable thereon ceases to be such and becomes a principal debtor. J. concurring: I concur and wish to add the observation that the appeal could have been treated as a petition for review under R. . Guerrero and Escolin. No costs.

Separate Opinions ABAD SANTOS. (2d) 470. it shall be dismissed to be prosecuted in the manner especially provided in these rules. 6 American Bank vs. Kerr. . Hesselberg. vs. p. 115 N. 4 Phil. Ting. concurring: I concur and wish to add the observation that the appeal could have been treated as a petition for review under R. 2 Section 38.A. 5 Pittsburg Westmoreland Coal Co. J. and the defendant dies before final judgment in the Court of First Instance. 22 SCRA 715. 5440 and dismissed by minute resolution. 195 S. debt or interest thereon. Where claim does not survive. The Negotiable Instruments Law.—When the action is for recovery of money. 4 Ang Tiong vs.W. 200 citing Industrial Bank and Trust Company vs... Macondray & Co. Footnotes 1 Sec.E. 21. 695. 3 Ogden. The Law of Negotiable Instruments.

J.R. 1960 CHAN WAN.M. BENGZON. C.Arellano Law Foundation Republic of the Philippines SUPREME COURT Manila EN BANC G.: . plaintif-appellant. L-15380 September 30. No. Manuel Domingo for appellant. defendants-appellees. vs. de los Reyes for appellees.The Lawphil Project . TAN KIM and CHEN SO.

however. testified only to identify the checks — which are Exhibits A to K — plus the letters of demand upon defendants. Art.. The Negotiable Instruments Law regulating the issuance of negotiable checks. His attorney. Such checks payable to "cash or bearer" and drawn by defendant Tan Kim (the other defendant is her husband) upon the Equitable Banking Corporation. 101 Phil.. the rights and the liabilities arising therefrom. In view of such circumstances. were all presented for payment by Chan Wan to the drawee bank.This suit to collect eleven checks totalling P4. the plaintif did not take the witness stand." At the hearing of the case. 2 In the Philippine National Bank vs. Zulueta. some of which are quoted in the margin. in the Manila court of first instance. 541 of the Code of Commerce refers to such instruments. 55 Of. the court dismissed it for failure of proof. and from such dismissal they did not appeal. Tan Kim declared without contradiction that the checks had been issued to two persons named Pinong and Muy for some shoes the former had promised to make and "were intended as mere receipts". the court declined to order payment for two principal reasons: (a) plaintif failed to prove he was a holder in due course. On the other hand. 222. but they "were all dishonored and returned to him unpaid due to insufficient funds and/or causes attributable to the drawer. that defendants asserted a counterclaim.00 is here for decision because it involves no issue of fact. Gaz. does not mention "crossed checks".290. 1 The bills of Exchange Act of England of 1882. The only issue is. 1071. we applied some provisions of said Bills of Exchange Act because the Negotiable . therefore. It may be stated in this connection. contains several provisions about them. and (b) the checks being crossed checks should not have been deposited instead with the bank mentioned in the crossing. the plaintif's right to collect on the eleven commercial documents.

presented to the drawee bank for collection. originating from England and codified in the United States. .5 Wherefore.Law. Viuda e Hijos de Chua Chiong Pio. this endorsement appears: For deposit to the account of White House Shoe Supply with the China Banking Corporation. For instance. and should have been presented for payment by China Banking. All prior endorsements and/or lack of endorsements guaranteed. therefore. And on the back of Exh. the drawer did not become liable. and the liability did not attach to the drawer. People's Shoe Company. It must be remembered. by the latter. on the back of the check Exhibit A (same as in Exh.3 Eight of the checks here in question bear across their face two parallel transverse lines between which these words are written: non-negotiable — China Banking Corporation. . permits resort thereto in matters not covered by it and local legislation. in the absence of due presentment. and not by Chan Wan. These checks have.4 Inasmuch as Chan Wan did present them for payment himself — the Manila court said — there was no proper presentment. that the drawer in drawing the check engaged that "on due presentment. G: For deposit to the credit of our account. and then this: Cleared through the clearing office of Central Bank of the Philippines. China Banking Corporation. been crossed specially to the China Banking Corporation. Nevertheless we find. endorsements which apparently show they had been deposited with the China Banking Corporation and were. We agree to the legal premises and conclusion. at this point. the check would be paid. B). on the backs of the checks. and that if it be dishonored . . he will pay the amount thereof to the holder".

8 if the latter has no valid excuse for refusing payment. The only disadvantage of holder who is not a holder in due course is that the negotiable instrument is subject to defense as if it were non- negotiable. and/or that they had been issued in payment of shoes which Pinong had promised to make for her. but as drawee had no funds. All the crossed checks have the "clearance" endorsement of China Banking Corporation. Yet she did not complete the idea. but he may recover from A. as the trial court surmised.6 Yet it does not follow as a legal proposition. upon taking them up. perhaps because she was just answering cross- questions. The Negotiable Instruments Law does not provide that a holder7 who is not a holder in due course. — this is not a finding of fact — he got them after they had been thus returned. Seeming to imply that Pinong had to make the shoes. they were unpaid and returned. evidently His Honor had in mind the defense pleaded in defendant's answer. she asserted Pinong had "promised to pay the checks for me".9 Now what defense did the defendant Tan Kim prove? The lower court's decision does not mention any. because he presented them in court with such "account closed" stamps. may not in any case.nèt Tan Kim admitted on cross-examination either that the checks had been issued as evidence of debts to Pinong and Muy. some of them stamped "account closed". plaintif did not indicate. the lower court held him not to be a holder in due course under the circumstances. that simply because he was not a holder in due course Chan Wan could not recover on the checks. her main testimony having referred merely to their counter-claim.followed by the endorsement of China Banking Corporation as in Exhibits A and B. that the checks had already been dishonored. since he knew. he is not a holder in due course. in his opinion. Naturally and rightly. These circumstances would seem to show deposit of the checks with China Banking Corporation and subsequent presentation by the latter through the clearing office. . but though it unnecessary to specify. because the "crossing" and presentation incidents sufficed to bar recovery. recover on the instrument.1awphîl. without bothering to explain. Most probably. How they reached his hands. If B purchases an overdue negotiable promissory note signed by A.

JJ. 541. Bautista Angelo. Barrera. and the cheque is crossed generally. to the court below for additional evidence. we think the record should be and is hereby returned." The payment made to a person other than the banker or institution shall not exempt the person on whom it is drawn. either with or without the words "not negotiable.] — (1) Where a check bears across its face an addition of — (a) The words "and company" or any abbreviation thereof between two parallel transverse lines.. Paredes and Dizon. Tan Kim would have a good defense as against a holder who is not a holder in due course. Footnotes 1SEC. Paras. 276. Concepcion. C. either with or without the words "not negotiable." that addition constitutes a crossing.. [General and Special Crossing Defined. Reyes.B.L. which he shall do by writing across the face the name of said banker or institution.Needless to say. . Gutierrez David." or (b) Two parallel transverse lines simply. — The maker or any legal holder of a check shall be entitled to indicate therein that it be paid to certain banker or institution. 10 Considering the deficiency of important details on which a fair adjudication of the parties' right depends. Padilla. So ordered. concur. if the payment was not correctly made. as defendants did not appeal. if it were true that the checks had been issued in payment for shoes that were never made and delivered. Labrador. their counterclaim must be and is hereby definitely dismissed.. and such further proceedings as are not inconsistent with this opinion. With the understanding that. in the interest of justice. or only the words "and company.J. J.

(2) Where a cheque bears across its face an addition of the name of a banker. so that the latter may take charge of the collection. 52 (b). 196. and the cheque is crossed specially and to that banker. or pays the same. Negotiable Instruments Law. (Sec. 60th Ed.) 3Sec. The check is generally deposited with the bank mentioned in the crossing. the drawee runs the risk. 79. Negotiable Instruments Law. 10Lack of consideration is a defense. Negotiable Instruments Law. So the practice is for the drawee to refuse when presented by individuals. 5Sec. (Taken from Brannan's Negotiable Instruments Law." that addition constitutes a crossing. 51. 28. 8Sec. in case of payment to persons not entitled thereto. Negotiable Instruments Law. 4If it is not presented by said Bank for payment. he is liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid. (2) Where the banker on whom a cheque is drawn which is so crossed nevertheless pays the same. 9SEC. 58 Negotiable Instruments Law. or if crossed specially otherwise than to the banker to whom it is crossed. Negotiable Instruments Law. because he had possession of the checks that were payable to bearer. . either with or without the words "not negotiable. 1250-1251. .) . 6Sec. . or his agent for collection being a banker. or pays a cheque crossed generally otherwise than to a banker. 7He was a holder all right. 61.

1986 EULALIO PRUDENCIO and ELISA T.: . Atty-in-Fact of Concepcion & Tamayo Construction Company. for respondent PNB. Jr. Palawan. Fernando R.R. JR. JOSE TORIBIO. RAMON C. J. Puerto Princesa. TAMAYO. petitioners. Mangubat. CONCEPCION and MANUEL M. PRUDENCIO. vs. L-34539 July 14. and THE DISTRICT ENGINEER. GUTIERREZ. No. respondents. THE PHILIPPINE NATIONAL BANK.. partners of the defunct partnership Concepcion & Tamayo Construction Company. THE HONORABLE COURT OF APPEALS.Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.

Jose Toribio. . After some persuasion appellants signed on December 23.00 and both documents were registered with the Register of Deeds of Manila. 1955. Appellants also signed the portion of the promissory note indicating that they are requesting the PNB to issue the Check covering the loan to the Company. in the amount of P36.00 were made integral part of the new mortgage for P10. in the same capacity as attorney-in. Sometime in 1955.00 extended to the Company.000.C. 1954. The terms and conditions of the original mortgage for Pl. 1955) that the 'Amendment of Real Estate' was executed. now the Intermediate Appellate Court.00 which the Company was negotiating with the PNB. maturing on April 27. hereinafter called the Bureau.00 extended to one Domingo Prudencio. was signed by Jose Toribio. affirming the order of the trial court which dismissed the petitioners' complaint for cancellation of their real estate mortgage and held them jointly and severally liable with the principal debtors on a promissory note which they signed as accommodation makers. had a pending contract with the Bureau of Public Works. Jose Toribio. 1956. The promissory note covering the loan of P10. appellants' relative. hereinafter called Company.T.000. approached the appellants asking them to mortgage their property to secure the loan of P10. the Concepcion & Tamayo Construction Company. and attorney-in-fact of the Company. for the construction of the municipal building in Puerto Princess. 1955 the 'Amendment of Real Estate Mortgage'. hereinafter called PNB.000. On the same date (December 23.00 dated December 29.fact of the Company.00 and.800. as attorney-in-fact of the Company.000. as said Company needed funds for said construction. mortgaging their said property to the PNB to guaranty the loan of P10. On October 7. executed also the 'Deed of Assignment' assigning all payments to be made by the Bureau to the Company on account of the contract for the construction of the Puerto Princesa building in favor of the PNB. 35161 of the Register of Deeds of Manila. to guarantee a loan of P1. Palawan.000. this property was mortgaged by the appellants to the Philippine National Bank.This is a petition for review seeking to annul and set aside the decision of the Court of Appeals. and covered by T. Manila. The factual background of this case is stated in the decision of the appellate court: Appellants are the registered owners of a parcel of land located in Sampaloc. and by the appellants.000.

Tamayo the sum of P11.00 on June 20.00 attorney's fees. appellants wrote the PNB contending that since the PNB authorized payments to the Company instead of on account of the loan guaranteed by the mortgage there was a change in the conditions of the contract without the knowledge of appellants. the Bureau rescinded the construction contract and assumed the work of completing the building. conditioned. which entitled the latter to a cancellation of their mortgage contract. partners of the defunct Company. Tamayo. After hearing. Ramon Concepcion and Manuel M. the remaining balance of the contract price should be applied to the loan.234.000. The Bureau's last request for P5. made three payments to the Company on account of the contract price totalling P11. it having been shown that its life as a partnership had already expired and. The complaint was amended to exclude the Company as defendant. the Company. On November 14. 1956.900.19 with interest at the rate of 6% per annum from the date of the filing of the complaint on June 27. 1959 until fully paid and Pl. as accommodation makers. 1958. the trial court rendered judgment. the petitioners' liability is that of solidary co-makers and that since "the amounts released to the construction company were used therein and. Failing in their bid to have the real estate mortgage cancelled. the latter's attorney-in-fact Jose Toribio. as a consequence of which on June 30.40. 1956. The Court of Appeals affirmed the trial court's decision in toto stating that. seeking the cancellation of their real estate mortgage. in lieu thereof. The decision also provided that if the judgment was not satisfied within 90 days from its receipt. denying the prayer in the complaint that the petitioners be absolved from their obligation under the mortgage contract and that the said mortgage be released or cancelled. Palawan. were impleaded in their private capacity as defendants. The petitioners were ordered to pay jointly and severally with their co-makers Ramon C.This assignment of credit to the contrary notwithstanding. with approval. the Bureau.000. appellants filed on June 27. and the District Engineer of Puerto Princesa. was denied by the PNB for the reason that since the loan was already overdue as of April 28. The Company abandoned the work. were spent for the successful accomplishment of the work constructed for. however that they should be for labor and materials. the authorization made by the Philippine National Bank of partial payments . 1956. the mortgaged properties together with all the improvements thereon belonging to the petitioners would be sold at public auction and applied to the judgment debt. Concepcion and Manuel M. however. of the PNB. 1959 this action against the PNB. therefore.

to the construction company which was also one of the solidary debtors cannot constitute a valid defense on the part of the other solidary debtors. the nature of their liability is only that of mere sureties instead of solidary co-debtors such that "a material alteration in the principal contract. there was no stipulation in said deed making it obligatory on the part of the PNB to notify the petitioners everytime it authorizes payment to the Company." The appellate court further held that PNB had no obligation whatsoever to notify the petitioners of its authorizing the three payments in the total amount of Pll. " They state that when respondent PNB did not apply the initial and subsequent payments to the petitioners' debt as provided for in the deed of assignment. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT HEREIN PETITIONERS WERE SOLIDARY CO-DEBTORS INSTEAD OF SURETIES: II. AND RELEASED TO SUCH PRINCIPAL DEBTOR PAYMENTS FROM THE BUREAU OF PUBLIC WORKS WHICH WERE MORE THAN ENOUGH TO WIPE OUT THE INDEBTEDNESS TO THE PNB. The petitioners contend that as accommodation makers. Second Assignment of Error. CONCEPCION & TAMAYO CONSTRUCTION COMPANY. . WHEN THE PNB. Moreover. It ruled that the petitioners cannot ask to be released from the real estate mortgage. CHANGED THE TENOR AND CONDITION OF THE ASSIGNMENT OF PAYMENTS MADE BY THE PRINCIPAL DEBTOR. WITHOUT THE KNOWLEDGE AND CONSENT OF PETITIONERS.00 in favor of the Company because aside from the fact that the petitioners were not parties to the deed of assignment.234. those who rendered services and furnished materials in the construction are preferred creditors and have a lien on the price of the contract. the petitioners raise the following issues which they present in the form of errors: I. they were released from their obligation as sureties and. therefore. In this petition. the real estate mortgage executed by them should have been cancelled. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS WERE NOT RELEASED FROM THEIR OBLIGATION TO THE RESPONDENT PNB. efected by the creditor without the knowledge and consent of the sureties. completely discharges the sureties from all liability on the contract of suretyship. First Assignment of Error.

That the appellant. petitioners would be primarily and unconditionally liable on the promissory note to a holder for value. the accommodation party is in efect a surety. 716): 3. drawer. unlike in a contract of suretyship. is immaterial to the claim of the appellee.. we ruled in Ang Tiong v.. So that the appellant stands only as a surety in relation to the maker. when sued on an instrument by a holder in due course and for value. no question that as accommodation makers. Aruego (102 SCRA 530. —An accommodation party is one who has signed the instrument as maker. or indorser. Ting (22 SCRA 713. regardless of whether they stand as sureties or solidary co-debtors since such distinction would be entirely immaterial and inconsequential .Section 29 of the Negotiable Instrument Law provides: Liability of accommodation party. granting this to be true for the sake of argument. cannot in any manner afect his liability to the appellee. he is a solidary co. in lending his name to the accommodated party.. and does not a whit diminish nor defeat the rights of the latter who is a holder for value. without receiving value therefor.debtor. again assuming him to be an accommodation indorser. therefore. may obtain security from the maker to protect himself against the danger of insolvency of the latter. Expounding on the nature of the liability of an accommodation petition party under the aforequoted section. notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party. Such a person is liable on the instrument to a holder for value. we held that ". There is. " However. can escape liability on his indorsement by the convenient expedient of interposing the defense that he is a mere accommodation indorser. acceptor. The liability of the appellant remains primary and unconditional. and for the purpose of lending his name to some other person. In the case of Philippine Bank of Commerce v. To sanction the appellant's theory is to give unwarranted legal recognition to the patent absurdity of a situation where an indorser. 539). 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 said remedy is a matter of concern exclusively between accommodation indorser and accommodated party. 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.. .

Randell (186 NorthWestern Reporter 71): We conclude. that a payee who receives a negotiable promissory note. such payee either acquired the note from another holder or has not directly dealt with the maker thereof. is not a holder in due course and stands on no better footing than a mere assignee. The question which should be resolved in this instant petition. from a holder. it was held: . Negotiable Instruments Law). and without any notice of any infirmity. so as to preclude the defense of fraud and failure of consideration between the maker and the holder to whom the instrument. can PNB. 208).as far as a holder for value is concerned. Consequently. If he does not qualify as a holder in due course then he holds the instrument subject to the same defenses as if it were non- negotiable (Section 58. therefore. (Agbayani. before maturity. Similarly. was delivered. in good faith. A holder for value under Section 29 of the Negotiable Instruments Law is one who must meet all the requirements of a holder in due course under Section 52 of the same law except notice of want of consideration. 1964. to whom it was negotiated as a completed instrument. not the maker. in the case of Stone v. therefore. is a holder in due course within the purview of a Negotiable Instruments law. As was held in the case of Bank of Commerce and Savings v. the petitioners cannot claim to have been released from their obligation simply because the time of payment of such obligation was temporarily deferred by PNB without their knowledge and consent. is whether or not PNB can be considered a holder for value under Section 29 of the Negotiable Instruments Law such that the petitioners must be necessarily barred from setting up the defense of want of consideration or some other personal defenses which may be set up against a party who is not a holder in due course. Goldberg & Lewis (60 Southern Reporter 748) on rehearing and quoting Daniel on Negotiable Instruments. the payee of the promissory note be considered a holder in due course? Petitioners contend that the payee PNB is an immediate party and. therefore. In those cases where a payee was considered a holder in due course. Commercial Laws of the Philippines. In the case at bar. p. There has to be another basis for their claim of having been freed from their obligation. for value.

00" and that "This assignment shall be irrevocable and subject to the terms and conditions of the promissory note and or any other kind of documents which the Philippine National Bank have required or may require the assignor to execute to evidence the above-mentioned obligation.It is a general principle of the law merchant that.000. PNB can not be regarded as having acted in good faith which is also one of the requisites of a holder in due course under Section 52 of the Negotiable Instruments Law.293. PNB approved the Bureau's release of three payments directly to the Company instead of paying the same to the Bank. This approval was in violation of the Deed of Assignment and without any notice to the petitioners who stood to lose their property once the promissory note falls due without the same having been paid because the PNB. Worse. This. 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. PNB had no intention to comply with strictly. a payee may be considered a holder in due course we think that such a rule cannot apply with respect to the respondent PNB. . Toribio. The PNB knew that the promissory note which it took from the accommodation makers was signed by the latter because of full reliance on the Deed of Assignment. that is. The Deed of Assignment specifically provided that Jose F." Under the terms of the above Deed. involving the total amount of P 36. Although as a general rule. transfer and convey unto the said Philippine National Bank.00. it is clear that there are no further conditions which could possibly alter the agreement without the consent of the petitioners such as the grant of greater priority to obligations other than the payment of the loan due to the PNB and part of which loan was guaranteed by the petitioners in the amount of P10. transferred and conveyed and by these presents.000. on behalf of the Company. which. From the foregoing circumstances. Not only was PNB an immediate party or in privy to the promissory note. the third payment to the Company in the amount of P4. an act which is clearly detrimental to the petitioners. in efect. it had dealt directly with the petitioners knowing fully well that the latter only signed as accommodation makers but more important. do assign.60 was approved by PNB although the promissory note was almost a month overdue. waived payments of the first three releases. its successors and assigns all payments to be received from the Bureau of Public Works on account of contract for the construction of the Puerto Princesa Municipal Building in Palawan. notwithstanding. PNB altered the same. as between the immediate parties to a negotiable instrument-the parties between whom there is a privity-the consideration may be inquired into. Petitioners were made to believe and on that belief entered into the agreement that no other conditions would alter the terms thereof and yet. "have assigned. it was the Deed of Assignment executed by the Construction Company in favor of PNB which principally moved the petitioners to sign the promissory note also in favor of PNB.

Thus. They only want to have it cancelled because the Bank violated the deed of assignment and extended the period of time of payment of the promissory note without the petitioners' consent and to the latter's detriment. it prejudiced itself because its very violation was the reason why it was not paid on time in its capacity as creditor in the promissory note. irrespective of whether or not the deed of assignment had been violated. if the Bank had not been the assignee. Without the promissory note which determines the amount of indebtedness there would have been no basis for the mortgage. The records show. Petitioners do not dispute the validity of the mortgage. the assignee and the creditor in this case are one and the same—the Bank itself. It would be unfair to make the petitioners now answer for the debt or to foreclose on their property. The mortgage cannot be separated from the promissory note for it is the latter which is the basis of determining whether the mortgage should be foreclosed or cancelled. It was only when the deed of assignment was shown to the spouses that they consented to the mortgage and signed the promissory note in the Bank's favor. However. that they would not have mortgaged the lot were it not for the sake of the Company whose attorney-in-fact was their relative.We. The spouses did not need the money for themselves. the petitioners can validly set up their personal defense of release from the real estate mortgage against PNB. . extended the term of the payment of the note without the consent of the accommodation makers who stand as sureties to the accommodated party and to all other parties who are not holders in due course or who do not derive their right from the same. in efect. in authorizing the third payment to the Company after the promissory note became due. hold that respondent PNB is not a holder in due course. The latter. Article 2085 of the Civil Code enumerates the requisites of a valid mortgage contract. The attorney-in-fact tried twice to convince the Prudencios to mortgage their property in order to secure a loan in favor of the Company but the Prudencios refused. It may be argued that the Prudencios could have mortgaged their property even without the promissory note. including PNB. True. then the petition petitioners would be obliged to pay the Bank as their creditor on the promissory note. however. therefore. When the Bank violated the deed of assignment.

Hence. JJ. No. concur.Arellano Law Foundation Prudencio v. The decision of the Court of Appeals affirming the decision of the trial court is hereby REVERSED and SET ASIDE and a new one entered absolving the petitioners from liability on the promissory note and under the mortgage contract. Fernan. There were remedies available at the time if the laborers and the creditors had not been paid. July 14. it should have informed the petitioners about the amendment of the deed of assignment.00) as attorney's fees. PNB did not need the approval of the Bureau. Alampay and Paras. That issue is academic. The Philippine National Bank is ordered to release the real estate mortgage constituted on the property of the petitioners and to pay the amount of THREE THOUSAND PESOS (P3. The fact is. as stated earlier. Court of Appeals [G. the petition is GRANTED. WHEREFORE. SO ORDERED. 124 SCRA 476). Lantin. (See Philippine Savings Bank v. the wages and materials constitute a lien only on the constructed building but do not enjoy preference over the loan unless there is a liquidation proceeding such as in insolvency or settlement of estate. the wages and materials have already been paid. they have been paid. it amended the deed of assignment which. What is in dispute is who should bear the loss in this case. But even if it did. L-34539. And thirdly. when the PNB accepted the condition imposed by the Bureau without the knowledge or consent of the petitioners. Feria (Chairman).. In the first place. was the principal reason why the petitioners consented to become accommodation makers.Neither can PNB justify its acts on the ground that the Bureau of Public Works approved the deed of assignment with the condition that the wages of laborers and materials needed in the construction work must take precedence over the payment of the promissory note.000. Secondly. 1986] . The Lawphil Project . the law and the equities of the case favor the petitioners. As between the petitioners and the Bank.R.

Jai-Alai Corporation v. Later.R. RULING NO. August 6. PNB altered the same. 1975] . PNB approved release of payments in contravention of the tenor of the said deed. PNB is not a holder in due course. Not only was PNB an immediate party or in privy to the promissory note – that is. L-29432. ISSUE Whether or not PNB may be considered as a holder in due course after fraudulent inducement. it had dealt directly with the petitioners knowing fully well that the latter only signed as accommodation – but petitioners were made to believe and on that belief entered into the agreement that no other conditions would alter the terms thereof and yet. BPI [G.engrjhez 3 years ago Advertisements FACTS Petitioners were induced to sign a promissory note after a Deed of Assignment was executed by the Construction Company in favor of PNB. No.

ISSUE Whether or not there exists creditor-debtor relationship between petitioner and respondent. the bank was to collect from the drawees of the checks the corresponding proceeds. as its collecting agent. the nature of the relationship created at that stage was one of agency. The petitioner must in turn shoulder the loss of the amounts which the respondent. had to reimburse to the drawee-banks. that is.engrjhez 3 years ago Advertisements FACTS Petitioner deposited to respondent bank several checks acquired through forged indorsements. The respondent bank debited petitioner’s account. . RULING No. There was no creditor-debtor relationship created between the parties. When the petitioner deposited the checks with the respondent.

******/ Jai Alai v. Repondent BPI debited petitioner’s current account and forwarded to the latter the checks containing the forged ind . Inc. ten checks with a total face value of P8. L-29432 August 6." were forgeries. which the former acquired from one Antonio Ramirez who was a sales agent of Inter-Island Gas Corporation and a regular bettor at jai-alai games. Drawn By: (drawer) Drawn Upon: (drawee) Payable to: (payee) 5 checks: Delta Engineering Service Pacific Banking Corporation Inter-Island Gas Service or ORDER 2 checks: Enrique Cortiz & Co.030. the return of the amounts they had paid on account thereof. For a better experience. the latter paid their value which the former in turn paid to the Inter-Island Gas. Bpi Digest More info Screen Reader Compatibility Information Due to the method this document is displayed on the page. please download the original document and view it in the native application on your computer. The drawers demanded reimbursement from the drawee-banks. and filed a criminal complaint against Ramirez with the Office of the City Fiscal of Manila. screen readers may not read the content correctly. 1959 to May 18. When the drawee-banks returned the checks to the respondent BPI. which in turn demanded from the respondent. 1959. JAI-ALAI VS BANK OF THE PHILIPPINE ISLANDS GR NO. 1975 FACTS: From April 2.. China Banking Corporation I nter-Island Gas Service or BEARER 2 checks: Roxas Manufacturing Inc Philippine National Bank Inter- Island Gas Service or ORDER After Ramirez had resigned from the Inter-Island Gas and after the checks had been submitted to inter- bank clearing. Inter-Island Gas notified the petitioner.58 were deposited by the petitioner Jai. as collecting bank. the drawers and the drawee- banks of the said checks about the forgeries. Pacific Banking Corporation Inter-Island Gas Service or BEARER 1 check: Luzon Tinsmith & Co.Alai in its current account with the respondent bank BPI. the Inter-Island Gas discovered that all the indorsements made on the checks purportedly by its cashiers as well as the rubber stamp impression thereon reading "Inter-Island Gas Service. the respondent.

It stands to reason." Respondent which relied upon the petitioner's warranty should not be held liable for the resulting loss. the payments made by the drawee-banks to the respondent on account of the said checks were inefective. The respondent BPI acted within legal bounds when it debited the petitioner's account. . which the petitioner refused to accept. as its collecting agent. that the respondent. petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL that every single one of those checks "is genuine and in all respects what it purports to be.orsements. The petitioner must in turn shoulder the loss of the amounts which the respondent. such being the case. So when petitioner drew against its current account with respondent a check for P135.000 payable to the order of Mariano Olondriz. and it did not appear that he was authorized to indorse it. ISSUE: Whether or not the BPI had the right to debit from petitioner’s current account the value of the checks with the forged endorsements? HELD: YES. The reason is that the bank with which the check was deposited has no right to pay the sum stated therein to the forger "or anyone else upon a forged signature. In legal contemplation. as a collecting bank which indorsed the checks to the drawee-banks for clearing. it was petitioner’s duty to that the payee's endorsement was genuine before cashing the check. the bank was to collect from the drawees of the checks the corresponding proceeds. therefore. upon the facts of record. It is the obligation of the collecting bank to reimburse the drawee-bank the value of the checks subsequently found to contain the forged indorsement of the payee." In contrast. Inc. for the indorsements on the checks had been forged prior to their delivery to the petitioner. The petitioner filed a complaint against the respondent with CFI Manila but it was dismissed by the trial court as well as by Court of Appeals. (Issue on Indorsement) Jai Alai Corporation is negligent in accepting the checks without question from Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas Services. the checks not having been properly and legitimately converted into cash. that is. a forged signature in a negotiable instrument is wholly inoperative and no right to discharge it or enforce its payment can be acquired through or under the forged signature except against a party who cannot invoke the forgery. When the petitioner deposited the checks with the respondent. and. Pursuant to Sec. the relationship of creditor and debtor between the petitioner and the respondent had not been validly efected. the same was dishonored for the insufficiency of funds. had to reimburse to the drawee- banks. should be liable to the latter for reimbursement. the nature of the relationship created at that stage was one of agency. 23 of the NIL. Having indorsed the checks to respondent bank.

Republic of the Philippines SUPREME COURT Manila .

Quezon City. in the following manner. Maniego — for the crime of MALVERSATION committed as follows: That on or about the period covering the month of May. Ubay. No. confederating with and helping one another. plaintif-appellee. GHQ. accused-appellant. Rizalino M. PAMINTUAN and JULIA T. that the acquittal of an accused on reasonable doubt is not generally an impediment to the imposition. willfully and feloniously. Philippines. The information which initiated the instant criminal proceedings in the Court of First Instance of Rizal indicted three (3) persons — Lt. in Quezon City. 1987 PEOPLE OF THE PHILIPPINES. willfully. did. L-30910 February 27. conspiring and confederating with co-accused. RIZALINO M. Milagros Pamintuan. a duly appointed officer in the Armed Forces of the Philippines in active duty.R. with intent of gain and without authority of law. MILAGROS T. and as such was entrusted with and had under his custody and control public funds. in the same criminal action. take. was designated as Disbursing Officer in the Office of the Chief of Finance. conspiring together. who. MANIEGO. J. with intent of gain and without authority of law. and accept from his said co- . unlawfully and feloniously malverse.: Application of the established rule in this jurisdiction. to wit: the accused. during the period specified above. and in pursuance of their conspiracy.434. Julia T. 1957 up to and including the month of August. Mrs. misappropriate and misapply public funds in the amount of P 66. unlawfully. did then and there. of civil liability for damages on said accused.FIRST DIVISION G. then and there.50 belonging to the Republic of the Philippines. Camp Murphy. NARVASA. JULIA MANIEGO. the above-named accused. 1957. Lt. receive. Ubay. vs. is what is essentially called into question by the appellant in this case. and Mrs.

to the damage and prejudice of the Republic of the Philippines. in the total amount of P66.434.434. 4 the dispositive part whereof reads: There being sufficient evidence beyond reasonable doubt against the accused. 10 On the other hand. to wit: . Ubay and Mrs. at the very least.50.434.50. Philippine currency.50 to the government. 9 Ubay's appeal was subsequently dismissed by the Appellate Court because of his failure to file brief. the Court hereby acquits her. is the indorser. MANIEGO. cashing said checks and using for this purpose the public funds entrusted to and placed under the custody and control of the said Lt. the Court hereby convicts him of the crime of malversation and sentences him to sufer the penalty of reclusion temporal of TWELVE (12) YEARS. Mrs. Maniego submitted her brief in due course.934. Maniego were arraigned. ONE (1) DAY to FOURTEEN (14) YEARS. Rizalino M. and a fine of P57. 1 Only Lt. Maniego. 2 Both Ubay and Maniego entered a plea of not guilty. EIGHT (8) MONTHS. Rizalino M. for which reason the same were dishonored and rejected by the said banks when presented for encashment. MILAGROS T. and to sufer perpetual special disqualification. of which the accused. praying that she be absolved from civil liability or. all the said accused knowing fully well that the said checks are worthless and are not covered by funds in the aforementioned banks. In the absence of evidence against accused Julia T. JULIA T.50. 6 The Court declined to negate her civil liability. Ubay. Ubay are hereby ordered to pay jointly and severally the amount of P57. PAMINTUAN is the drawer and the accused.50. Ubay.934. but did reduce the amount thereof to P 46. that her liability be reduced to P46. in the amount of P66.50 which is the amount malversed. and ascribed three (3) errors to the Court a quo. 3 After trial judgment was rendered by the Court of First Instance. but both she and Rizal T.accused several personal checks drawn against the Philippine National Bank and the Bank of the Philippine Islands. Pamintuan having apparently fled to the United States in August. 5 Maniego sought reconsideration of the judgment.434. 7 She appealed to the Court of Appeals 8 as Ubay had earlier done. 1962.

and Section 3. Well known is the principle that "any person criminally hable for felony is also civilly liable. of the Judiciary Act. 2) Even assuming arguendo that she could properly be held civilly liable after her acquittal. her appeal was later certified to this Court pursuant to Section 17. 12 The verdict must go against the appellant. as amended. 3(b) — Extinction of the penal action does not carry with it extinction of the civil. contrary to her submission. In other cases. 16 Rule III SEC. 17 Maniego's acquittal on reasonable doubt of the crime of Malversation imputed to her and her two (2) co-accused did not operate to absolve her from civil liability for reimbursement of the amount rightfully due to the Government as owner thereof. instead of absolving her altogether. 11 Because. Maniego's brief raised only questions of law. it was error for the lower Court to adjudge her liable as an indorser to indemnify the government for the amount of the cheeks. in the Appellate Court's view. as it was so adjudged. by the Trial Court on the basis of the . A person's acquittal of a crime on the ground that his guilt has not been proven beyond reasonable doubt 14 does not bar a civil action for damages founded on the same acts involved in the ofense. Her liability therefor could properly be adjudged." 13 But a person adjudged not criminally responsible may still be held to be civilly liable. 3) The Lower Court erred in declaring her civilly liable jointly and severally with her co-defendant Ubay. unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist. in relation to Section 31. Hence. Rule 50 of the Rules of Court. 15 Extinction of the penal action does not carry with it extinction of the civil unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist.1) The Lower Court erred in holding her civilly liable to indemnify the Government for the value of the cheeks after she had been found not guilty of the crime out of which the civil liability arises. the person entitled to the civil action may institute it in the jurisdiction and in the manner provided by law against the person who may be liable for restitution of the thing and reparation of indemnity for the damage sufered. (1985 Rules on Criminal Procedure).

e. 24 WHEREFORE. the judgment of the Trial Court. "a person placing his signature upon an instrument otherwise than as maker. " 19 Such an indorser "who indorses without qualification. to obtain reimbursement from the party accommodated. drawer. Melencio-Herrera. without receiving value therefor. being entirely in accord with the facts and the law. and for the purpose of lending his name to some other person. or to any subsequent indorser who may be compelled to pay it." 22 although she has the right. or both.e. notwithstanding such holder at the time of taking the instrument knew ** (her) to be only an accommodation party. or acceptor ** unless he clearly indicates by appropriate words his intention to be bound in some other capacity. ** (the instrument) shall be accepted or paid. concur." 21 As such. acceptor. the holder or last indorsee of a negotiable instrument has the right to "enforce payment of the instrument for the full amount thereof against all parties liable thereon. drawer. "since the relation between them is in efect that of principal and surety." inter alia "engages that on due presentment. is likewise untenable. he will pay the amount thereof to the holder. after paying the holder. with costs against the appellant. as the case may be.evidence before it." 23 One last word. and that if it be dishonored. according to its tenor.. The Trial Court acted correctly in adjudging Maniego to be civilly liable in the same criminal action in which she had been acquitted of the felony of Malversation ascribed to her. i. JJ. dispensing with the necessity of having a separate civil action subsequently instituted against her for the purpose. Feliciano. or indorser." 20 Maniego may also be deemed an "accommodation party" in the light of the facts. the accommodation party being the surety. she may not be made liable on account of the dishonor of the checks indorsed by her. Appellant's contention that as mere indorser. and the necessary proceedings on dishonor be duly taken.. SO ORDERED." 18 Among the "parties liable thereon" is an indorser of the instrument i. Cruz. Ubay. then in the official custody of Lt. Gancayco and Sarmiento. is hereby affirmed in toto. Under the law. which adequately establishes that she was an indorser of several checks drawn by her sister. which were dishonored after they had been exchanged with cash belonging to the Government.. Yap (Chairman). a person "who has signed the instrument as maker. she is under the law "liable on the instrument to a holder for value. .

I. II. Vol. 42-43. 7 Id. pp. I. 2 CFI Record. 11 Id.. 212. CFI Record. 10 Rollo. Vol. pp.Footnotes 1 Rollo. pp. 24-44. Vol. 1-3. 32. p. 5 Rollo. p. 122-125. Appellant's Brief. 156-157. 96. pp. 188-192. pp. 1964. pp. Vol. 72. 211. but promulgated on August 6. p. II. 163-183. pp. 6 CFI Record. . Vol. 2-4.. 54. pp. 9 Id. 1964. 4 Bearing date of June 10. 3 CFI Record. CFI Record. II. 9-11. 186-187.. p. pp.. 8 Id. Emphasis supplied.

18 Sec. 15 ART.12 Id. Abaroa. 23 Philippine National Bank v. 558. People v. 98 Phil. 29. 8 Phil. V. Rules of Court [of 1964]. Civil Code. 93-95. 129 SCRA 558 (565-566) citing PNB v. 1984.. 2. 20 Sec. CA. May 31. Laperal de Guzman v. 327. Maza and Mecenas. Larion 45 Phil. 21 Sec. Pajarillo. pp. 96 Phil. v. 13 ART. 57. Wise & Co. citing Oro v. Pantig. Collector of Internal Revenue. Catipon. Rules of Court [of 1964]. Padwa v. 19 Sec. 29. . 48 Phil. Id. Rule 133. 558. 22 Id. 2031. 97 PhiL 748 and Castro v. 100. 4 SCRA 1093. 66. 63. Id. 314. Alvia. 286. 3 [c]. Alvia. Id. Onrubia. Act No. 207. 14 Sec. 178. 16 Sec. De Guzman v. Rule 111. 23 Phil. 17 Invoking Almeida et al. 96 Phil. Revised Penal Code. Francisco v. 46 Phil. 484.

L-30910. February 27.R. 288-289. which were dishonored after they have been exchanged with cash belonging to the Government. . Law on Torts and Damages.24 Padilla v. Phil. Maniego [G. No. CA supra. The Lawphil Project . pp. 1987] engrjhez 3 years ago Advertisements FACTS Accused-appellant Maniego was an indorser of several checks drawn by her sister.Arellano Law Foundation People v. citing Sangco.

the holder or last indorsee of a negotiable instrument has the right to “enforce payment of the instrument for the full amount thereof against all parties liable thereon. Appellant’s contention that as mere indorser. Under the law. RULING NO.” . she may not be made liable on account of the dishonor of the checks indorsed by her is untenable.ISSUE Whether or not Maniego may not be made liable on account of dishonor of checks indorsed by her.