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Philippines National Bank vs. Erlando T. Rodriguez, et al. G.R. No.

170325, September 26, 2008
A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the
payee is apparently grossly negligent in its operations. This Court has recognized the unique public interest
possessed by the banking industry and the need for the people to have full trust and confidence in their banks.
For this reason, banks are minded to treat their customer’s accounts with utmost care, confidence, and
honesty. In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of
the drawer and to pay the check strictly in accordance with the drawer’s instructions, i.e., to the named payee
in the check.
Facts: Spouses Rodriguez maintained a savings and demand/checking accounts with petitioners
Philippines National Bank (PNB). They were engaged in the informal lending business and had a
discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an
association of PNB employees, which likewise maintained current and savings accounts with petitioner
bank. PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated
checks issued to members whenever the association was short of funds. As was customary, the spouses
would replace the postdated checks with their own checks issued in the name of the members.

It was PEMSLA’s policy not to approve applications for loans of members with outstanding debts. To
subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their
outstanding loan accounts. They took out loans in the names of unknowing members, without the
knowledge or consent of the latter. The PEMSLA checks issued for these loans were then given to the
spouses for rediscounting. The officers carried this out by forging the indorsement of the named payees in
the checks. In return, the spouses issued their personal checks (Rodriguez checks) in the name of the
members and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were
deposited by the spouses to their account. Meanwhile, the Rodriguez checks were deposited directly by
PEMSLA to its savings account without any indorsement from the named payees. This usual irregular
procedure is made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and
bank teller in the PNB Branch.

The spouses issued 69 checks, in the total amount of P2,345,804.00, payable to 47 members of PEMSLA.
After finding out such fraudulent act, PNB closed the current account of PEMSLA. As a result, the PEMSLA
checks deposited by the spouses were returned or dishonored for the reason “Account Closed.” The
corresponding Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The
amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA checks given as
payment were returned, spouses Rodriguez incurred losses from the rediscounting transactions. Spouses
Rodriguez sued PEMSLA and PNB. They contended that because PNB credited the checks to the PEMSLA
account even without indorsements, PNB violated its contractual obligation to them as depositors. PNB
paid the wrong payees, hence, it should bear the loss. Trial court ruled in favor of spouses and ordered
PNB to pay. CA affirmed the decision. Hence this petition
Issue: Whether or not PNB can be made liable to pay the amount of checks which were deposited to the
PEMSLA savings account.

Held: A bank that regularly processes checks that are neither payable to the customer nor duly indorsed
by the payee is apparently grossly negligent in its operations. This Court has recognized the unique public
interest possessed by the banking industry and the need for the people to have full trust and confidence in
their banks. For this reason, banks are minded to treat their customer’s accounts with utmost care,
confidence, and honesty. In a checking transaction, the drawee bank has the duty to verify the genuineness
of the signature of the drawer and to pay the check strictly in accordance with the drawer’s instructions, i.e.,
to the named payee in the check. It should charge to the drawer’s accounts only the payables authorized
by the latter. Otherwise, the drawee will be violating the instructions of the drawer and it shall be liable for
the amount charged to the drawer’s account. Rodriguez checks are payable to order since the bank failed
to prove that the named payees therein are fictitious. Hence, the fictitious-payee rule which will make the
instrument payable to bearer does not apply. PNB accepted the 69 checks for deposit to the PEMSLA
account even without any indorsement from the named payees. It bears stressing that order instruments
can only be negotiated with a valid indorsement.

in person or by his representative. Article V of Rules and Regulations Governing Central Bank Certificates of Indebtedness states that the assignment of registered certificates shall not be valid unless made at the office where the same have been issued and registered or at the Securities Servicing Department. * CA: The appellate court ruled that the subject CBCI is not a negotiable instrument. The pertinent portions of the subject CBCI read: xxx xxx xxx The Central Bank of the Philippines (the Bank) for value received. and (e) Where the instrument is addressed to a drawee. D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank. NO. and the certificate lacked the words of negotiability which serve as an expression of consent that the instrument may be transferred by negotiation. (d) Must be payable to order or to bearer. Under section 3. and is not governed by the negotiable instruments law. or at a fixed or determinable future time.Traders Royal Bank v CA (Negotiable Instruments Law) TRADERS ROYAL BANK V CA G. and by the registered owner thereof. to FILRITERS GUARANTY ASSURANCE CORPORATION. (c) Must be payable on demand. the action was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court. 1997 FACTS: Filriters registered owner of Central Bank Certificate of Indebtedness (CBCI). Philfinance transferred same CBCI to Traders Royal Bank (TRB) under a repurchase agreement. hereby promises to pay bearer. 2031 an instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer. Central Bank of the Philippines. 93397 March 3. Subsequently. the principal sum of FIVE HUNDRED THOUSAND PESOS. Thus. The Central Bank did not want to recognize the transfer. to compel the Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal Bank (TRB). DECISION OF LOWER COURTS: * RTC: transfer is null and void. No. . 83-17966 in the Regional Trial Court of Manila. duly authorized in writing.R. ISSUES & RULING: 1. For this purpose. Philfinance acquired no title or rights under CBCI No. the transfer of the instrument from Philfinance to TRB was merely an assignment. Docketed as Civil Case No. the registered owner hereof. of if this Certificate of indebtedness be registered. he must be named or otherwise indicated therein with reasonable certainty. The CBCI is not a negotiable instrument. APPLICABLE LAWS: Under section 1 of Act no. Filriters transferred it to Philfinance by one of its officers without authorization from the company. Whether the CBCI is negotiable instrument or not. (b) Must contain an unconditional promise or order to pay a sum certain in money. The TRB tried to register in its name in the CBCI. Branch 32. the transferee may be designated as the representative of the registered owner. When Philfinance failed to do so. since the instrument clearly stated that it was payable to Filriters.

The identity of PUFC can’t be maintained as that of FGAC because of this mere fact. One of officers who signed the deed of assignment in behalf of Filriters did not have the necessary written authorization from the Board of Directors of Filriters. Obviously the Assignment of certificate from Filriters to Philfinance was null and void. For lack of such authority the assignment is considered null and void. protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person. the transfer from FGAC to PUFC is not valid. 2. TRB merely showed that PUFC owns 90% of FGAC and that their directors are the same. Whether the Assignment of registered certificate is valid or null and void. Otherwise instrument shall not bind the parties. These certificates are actually proof that FGAC has the required reserve investment with the Central Bank to operate as an insurer and to protect third persons from whatever liabilities FGAC may incur. ISSUE: Whether or not Traders Royal Bank is correct. there is nothing else which could lead the court under the circumstance to disregard their corporate personalities. TRB as a banking institution is not ignorant about these types of transactions. TRB avers that that the veil of corporate fiction. IT'S NULL AND VOID. Filriters Guaranty Assurance Corporation (FGAC) is the owner of several Central Bank Certificates of Indebtedness (CBCI). The fact that a non- owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI. that as such. In 1979. In short. TRB then filed a petition for mandamus to compel the Central Bank to register said CBCI in TRB’s name. However. Said sale with TRB comes with a right to repurchase on a date certain. that payment of said CBCI to PUFC is like a payment to FGAC hence the sale between PUFC and TRB is valid. Later.Before the instruments become negotiable instruments. . Petitioner knew that Philfinance is not registered owner of the CBCI No. that PUFC owns 90% of FGAC. that the subsequent transfer from PUFC to TRB is likewise invalid. Clearly shown in the record is the fact that Philfinance's title over CBCI is defective since it acquired the instrument from Filriters fictitiously. PUFC failed to repurchase said CBCI hence TRB requested the Central Bank to have said CBCI be registered in TRB’s name. Further. FGAC agreed to assign said CBCI to Philippine Underwriters Finance Corporation (PUFC). that the two corporations have identical sets of directors. PUFC acquired no valid title over the CBCI. when the day to repurchase arrived. Traders Royal Bank failed to show that the corporate fiction is used by the two corporations to defeat public convenience. between PUFC and FGAC. TRB averred that PUFC is the alter ego of FGAC. that since it was invalid. PUFC sold said CBCI to Traders Royal Bank (TRB). justify wrong. Central Bank refused as it alleged that the CBCI are not negotiable. TRB can’t argue that it was defrauded into buying those certificates. the instrument must conform to the requirements under the Negotiable Instrument Law. should be pierced because the two corporations allegedly used their separate identity to defraud TRD into buying said CBCI. HELD: No. Under 1409 of the Civil Code those contracts which are absolutely simulated or fictitious are considered void and inexistent from the beginning. In the first place. It should know for a fact that a certificate of indebtedness is not negotiable because the payee therein is inscribed specifically and that the Central Bank is obliged to pay the named payee only and no one else. D891.

Each promissory note was uniformly written in the following manner: ___________. Shozo Yamaguchi Sgd. RPB eventually sued Yamaguchi and Canlas. Canlas. at its office in Manila. 9 promissory notes were executed. through its board authorized Shozo Yamaguchi (president) and Fermin Canlas (treasurer) to obtain credit facilities from Republic Planters Bank (RPB). HELD: Yes. For this. by the presence of the phrase “joint and several” as describing the unconditional promise to pay to the order of Republic Planters Bank. I/we. ISSUE: Whether or not Canlas should be held liable for the promissory notes.) Philippine Currency… Please credit proceeds of this note to: ________ Savings Account ______XX Current Account No. jointly and severally promise to pay to the ORDER of the REPUBLIC PLANTERS BANK. . Fermin Canlas The note became due and no payment was made. Sgd. the maker promises to pay to the order of the payee or any holder according to the tenor thereof. they are deemed to be jointly and severally liable thereon. without reason for ambiguity. persons who write their names on the face of promissory notes are makers and are liable as such. The solidary liability of private respondent Fermin Canlas is made clearer and certain. for value received. the sum of ___________ PESOS(…. By signing the notes. averred that he should not be held personally liable for such authorized corporate acts that he performed inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment Manufacturing. after date. Where an instrument containing the words “I promise to pay” is signed by two or more persons.Republic Planters Bank vs Court of Appeals In 1979. World Garment Manufacturing. Canlas is solidarily liable on each of the promissory notes bearing his signature for the following reasons: The promissory notes are negotiable instruments and must be governed by the Negotiable Instruments Law. 1372-00257-6 of WORLDWIDE GARMENT MFG. CORP. in his defense. Philippines. Under the Negotiable lnstruments Law.

533. ISSUE: Whether the non-negotiability of a promissory note prevents its assignment. . Court of Appeals GR 89252. 1981. RULING: A negotiable instrument.Sesbreno vs CA Sesbreno vs. but Sesbreno learned that the security which was issued on April 10. while marked "non-negotiable. As Sesbreno was unable to collect his investment and interest thereon. has a face value of P2. absent an express prohibition against assignment or transfer written in the face of the instrument. The subject promissory note. he filed an action for damages against Delta Motors and Pilipinas Bank. The legal consequences of negotiation and assignment of the instrument are different. nor any instrument related thereto.000 with the Philippine Underwriters Finance Corporation (PhilFinance). The checks were dishonored for having been drawn against insufficient funds. in whole or in part." was not at the same time stamped "non- transferable" or "non-assignable.33 payable on March 13. and was stamped “non- negotiable” on its face.833. Pilipinas Bank never released the note. and postdated checks drawn against the Insular Bank of Asia and America for P304. 24 May 1993 FACTS: Petitioner Sesbreno made a money market placement in the amount of P300.300. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note." It contained no stipulation which prohibited Philfinance from assigning or transferring such note. instead of being negotiated. may also be assigned or transferred. the Certificate of Securities Delivery Receipt indicating the sale of the note with notation that said security was in the custody of Pilipinas Bank. with a term of 32 days. A non- negotiable instrument may not be negotiated but may be assigned or transferred. 1980. to Sesbreno. maturing on 6 April 1981.33 with PhilFinance as payee and Delta Motors as maker. Delta Motors contents that said promissory note was not intended to be negotiated or otherwise transferred by Philfinance as manifested by the word "non-negotiable" stamped across the face of the Note.

RODRIGO RIVERA promise to pay spouses SALVADOR C. a petition at the Supreme Court. the amount due the Spouses Chua was pegged at P366. the two checks were dishonored forthe reason “account closed. The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail. Rivera obtained a loan from the Spouses Chua evidenced by a Promissory Note. Three years from the date of payment stipulated in the promissory note. The MeTC ruled against Rivera requiring him to pay the spouses Chua P120. the sum of One Hundred Twenty Thousand Philippine Currency (_120. I.00 covering the principal of P120. Branch 30.000. The Court of Appeals further affirmed the decision upon appeal of the two inferior courts but with modification of lowering the stipulated interest to 12% per annum.000. Manila. issued and delivered to Spouses Chua two (2) checks drawn against his account at Philippine Commercial International Bank (PCIB) but upon presentment for payment. the Spouses Chua were constrained to file a suit before the MeTC.00) One Hundred Twenty Thousand Pesos on December 31. Whether or not the Promissory Note executed as evidence of loan falls under Negiotiable Instruments Law. 1995.” As of 31 May 1999. 2015 FACTS: The parties were friends and kumpadres for a long time already. Rivera. CHUA and VIOLETA SY CHUA. Whether or not the stipulated interest is unconscionable and should really be lowered. Hence. 1995.000.00 plus stipulated interest at the rate of 5% per month from 1 January 1996. The relevant parts of the note are the following: (a) FOR VALUE RECEIVED. 3. I agree to pay the sum equivalent to FIVEPERCENT (5%) interest monthly from the date of default until the entire obligation is fully paid for. 184458 JANUARY 14. . RIVERA VS SPOUSES CHUA GR NO. and legal interest at the rate of 12% percent per annum fromn11 June 1999 and was affirmed by the RTC of Manila.00) on December 31. ISSUES: 1.00 plus five percent (5%) interest per month from 1 January 1996 to 31 May 1999. 2.000. Whether or not a demand from spouses Chua is needed to make Rivera liable. Because of Rivera’s unjustified refusal to pay.000. (b) It is agreed and understood that failure on my part to pay the amount of (_120.

YES. Series of 2013 reducing the rate of legal interest to 6% per annum. the Spouses Chua. However. Since the interest rate agreed upon is void. will give rise to the obligation to pay interest. The instrument is still governed by the Civil Code as to interpretation of their obligations. The clause in the Promissory Note containing the stipulation of interest (letter B in the above facts) which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the “date of default” until the entire obligation is fully paid for. and not to order or to bearer.30 BSP Circular No. Gallery Frames. 31 December 1995. 799. 2. a demand from spouses Chua is not needed to make Rivera liable. thus.RULINGS: 1. 799 is prospectively applied from 1 July 2013. NO. the 12% per annum rate of legal interest is only applicable until 30 June 2013. or to the order of the Spouses Chua as payees. NO. before the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. the rate of interest should be 12% per annum computed from the date of judicial or extrajudicial demand. 3. Theparties evidently agreed that the maturity of the obligation at a date certain. the parties are considered to have no stipulation regarding the interest rate. The Supreme Court held that as observed by Rivera. herein respondents. indeed. the stipulated interest is unconscionable and should really be lowered. The Supreme Court held that the Instrument was not able to meet the requisites laid down by Section 1 of the Negotiable Instruments Law as the instrument was made out to specific persons. Article 1169 of the Civil Code explicitly provides that the demand by the creditor shall not be necessary in order that delay may exist when the obligation or the law expressly so declare. Pursuant to our ruling in Nacar v. the stipulated interest of 5% per month or 60% per annum in addition to legal interests and attorney’s fees is. Rivera is still liable under the terms of the Promissory Note that he issued. . the Promissory Note executed as evidence of loan does not fall under Negotiable Instruments Law. highly iniquitous and unreasonable and stipulated interest rates if illegal and are unconscionable the Court is allowed to temper interest rates when necessary. Even if Rivera’s Promissory Note is not a negotiable instrument and therefore outside the coverage of Section 70 of the NIL which provides that presentment for payment is not necessary to charge the person liable on the instrument.

For backwages. The Supreme Court affirmed the decision of the Labor Arbiter and the decision became final on May 27. 1997) until the finality of the SC decision (May 27. 1998). After the finality of the SC decision. The LA reasoned that the said date should be the reckoning point because Nacar did not appeal hence as to him. If stipulated in writing: a. The LA denied the motion as he ruled that the reckoning point of the computation should only be from the time Nacar was illegally dismissed (January 24. ISSUE: Whether or not the Labor Arbiter is correct. rate of interest shall be 6% per annum 2. the rules on interest are now as follows: 1. the liability of the employer. Specifically. Jr. This is immediately final even if the employer appeals – but will be reversed if employer wins on appeal. Loans: a. 1997) until the decision of the LA (October 15. shall run from date of default (either failure to pay upon extra-judicial demand or upon judicial demand whichever is appropriate and subject to the provisions of Article 1169 of the Civil Code) b. Anent the issue of award of interest in the form of actual or compensatory damages. Monetary Obligations ex. will increase – this is just but a risk that the employer cannot avoid when it continued to seek recourses against the Labor Arbiter’s decision.919. On October 15.1. the Supreme Court ruled that the old case of Eastern Shipping Lines vs CA is already modified by the promulgation of the Bangko Sentral ng Pilipinas Monetary Board Resolution No. 2002. shall run from date of judicial demand (filing of the case) a. as a consequence. it will be computed from the date of illegal dismissal until the date of the decision of the Labor Arbiter. 1998. 2002) with interest. If not stipulated in writing b. then the end date shall be extended until the day when the appellate court’s decision shall become final. But if the employer appeals. There are two parts of a decision when it comes to illegal dismissal cases (referring to cases where the dismissed employee wins.1. HELD: No. that decision became final and executory.92 in damages consisting of backwages and separation pay. Hence. 796 which lowered the legal rate of interest from 12% to 6%. Gallery Frames appealed all the way to the Supreme Court (SC). Non-Monetary Obligations (such as the case at bar) . or loses but wins on appeal). The first part is the ruling that the employee was illegally dismissed. if he loses on appeal. This is also in accordance with Article 279 of the Labor Code.2. The second part is the ruling on the award of backwages and/or separation pay. rate of interest shall be that amount stipulated b. Nacar filed a motion before the LA for recomputation as he alleged that his backwages should be computed from the time of his illegal dismissal (January 24. Nacar alleged that he was dismissed without cause by Gallery Frames on January 24.NACAR vs GALLERY FRAMES Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey. the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal hence the Arbiter awarded Nacar P158.2. 1997.

4. 2013 shall apply the 12% rate. 2013 shall still incur the 6% rate. Civil Code) b. Interest shall still be 6% per annum demandable from the date of judgment because such on such date. – Final and executory judgments awarding damages on or after July 1. Compounded Interest – This is applicable to both monetary and non-monetary obligations – 6% per annum computed against award of damages (interest) granted by the court. demandable from date of judicial or extra-judicial demand (Art. If already liquidated. If unliquidated. no interest Except: When later on established with certainty. 2013 shall apply the 12% rate for unpaid obligations until June 30. 3. 1169.a. 2013. The 6% per annum rate of legal interest shall be applied prospectively: – Final and executory judgments awarding damages prior to July 1. rate of interest shall be 6% per annum. To be computed from the date when the court’s decision becomes final and executory until the award is fully satisfied by the losing party. . it is already deemed that the amount of damages is already ascertained. unpaid obligations with respect to said judgments on or after July 1.

and that the minors pretended that they had already reached their majority. Art 1431 of Civil Code. by his own declaration.MERCADO v ESPIRITU FACTS: This case is about the signing of a deed of sale in which two of the four parties were minors with age 18. This is also in accordance with the provisions of Rule 123. these minors cannot be permitted afterwards to excuse themselves from compliance with the obligation assumed by them or seek their annulment. and to act upon such belief. an admission or representation is rendered conclusive upon the person making it. Sec 68. he cannot. On the date of sale. in any litigation arising out of such declaration. ISSUE: Whether or not the deed of sale is valid when the minors presented themselves that they were of legal age. act or omission. and do not exempt the incapacitated person from certain obligations. sec 68. intentionally and deliberately led another to believe a particular thing to be true. and they made the same manifestation before the notary public. RATIO: The courts laid down that such sale of real estate was still valid since it was executed by minors. act or omission. and cannot be denied or disproved as against the person relying thereon. prodigality and civil-interdiction are mere restrictions on the capacity to act. the state of being a deaf-mute. Also. This is in accordance with the provisions of the law on estoppel.”Whenever a party has. A. as when the latter arise from his acts or from property relations.. Par. cannot be permitted to falsify it. Through estoppel. Minority. Par. . and are near the adult age.. insanity or imbecility. such as easements. This is in accordance with the provisions of the law on estoppels. A Rule 123. and 19. these minors presented themselves that they were of legal age at the time they signed it. who have passed the ages of puberty and adolescence. Article 38.

the SC reversed the decision of the CA which found them similarly liable due to their failure to disclose their minority. 1340 states that even if the written contract is unenforceable because of their non-age.000 in Japanese war notes and in consideration thereof. The SC sustained previous sources in Jurisprudence – “in order to hold the infant liable. It has been held that his mere silence when making a contract as to his age does not constitute a fraud which can be made the basis of an action of deceit.00.000 + 2% interest. . In this case. which when converted to Philippine money is equivalent to P1. though not bound by the provisions of the contract. 2/3 of P70. She is ordered to pay 1/3 of P10. the fraud must be actual and not constructive. The family petitioned to review the decision of the CA whereby they were ordered to solidarily pay De Villa Abrille P10. ISSUE: Whether the boys. promised in writing to pay him P10.BRAGANZA v VILLA ABRILLE FACTS: Rosario Braganza and her sons loaned from De Villa Abrille P70. Because they have no paid. The Manila court of first instance and CA held the family solidarily liable to pay according to the contract they signed.000 + 2% interest. However with her sons. Abrille sued them in March 1949.67.” The boys. are still liable to pay the actual amount they have profited from the loan. which is P46. RATIO: The SC found that Rosario will still be liable to pay her share in the contract because the minority of her sons does not release her from liability.166. who were 16 and 18 respectively.666.00 + 2% per annum in legal currency of the Philippines 2 years after the cessation of the war. are to be bound by the contract of loan they have signed. they shall make restitution to the extent that they may have profited by the money received.66. praying for consideration of the minority of the Braganza sons when they signed the contract. Art.

Pasig City. please show your sincerity by personally inspecting the said vehicle at RCBC. the right of rescission is implied in reciprocal obligations where one party fails to perform what is incumbent upon him when the other is willing and ready to comply.. Pearl Drive.. 219037. Odrada.000) and Thirteen Thousand Five Hundred Pesos (P13.000) was financed by petitioner RCBC Savings Bank (RCBC) through a car loan RCBC required Lim to submit the original copies of the Certificate of Registration (CR) and Official Receipt (OR) in his name. Lim notified Odrada in a letter dated 15 April 2002 that there was an issue regarding the roadworthiness of the Montero. 2016-10-19 Facts: respondent Noel M. . for Nine Hundred Thousand Pesos (P900..500). trial court ruled in favor of Odrada. Odrada filed a collection suit[9] against Lim and RCBC Lim claimed that the cancellation was not done ex parte but through a letter[.510.000) was initially paid by Lim and the balance of Nine Hundred Thousand Pesos (P900. GR No.000) (P610. RCBC also sent a formal notice of cancellation of the loan on 18 April 2002 to both Odrada and Lim.. NOEL M.. RCBC contended that the manager's checks were dishonored because Lim had cancelled the loan. Lim (Lim) for One Million Five Hundred Ten Thousand Pesos (P1. ODRADA. Pacific Bldg. drada did not go to the slated meeting and instead deposited the manager's checks. checks were dishonored both times apparently upon Lim's instruction to RCBC. represented the vehicle as model 1998 however. prior to the presentation of the manager's checks.. Lim requested RCBC to execute a letter addressed to Odrada informing the latter that his application for a car loan had been approved. Odrada was the proper party to ask for rescission. it is indicated in the front left A-pillar inscribed at the identification plate [as] model 1997. Odrada executed a Deed of Absolute Sale on 9 April 2002 in favor of Lim and the latter took possession of the Montero.. Odrada (Odrada) sold a second-hand Mitsubishi Montero (Montero) to Teodoro L. After the issuance of the manager's checks and their turnover to Odrada but prior to the checks' presentation. when you open its engine cover there is a trace of a head-on collision The 4-wheel drive shift is not functioning. RCBC issued two manager's checks. the odometer has still an original mileage data but found tampered. Ortigas Center.. the letter was delivered to Odrada prior to the presentation of the manager's checks to RCBC.RCBC SAVINGS BANK v. When RCBC received the documents. Unable to produce the Montero's OR and CR.

unless a contrary intention appears. Article 1547 of the Civil Code. From that moment. Principles: a contract of sale is perfected the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price which is the consideration." Article 1566 of the Civil Code provides that "the vendor is responsible to the vendee for any hidden faults or defects in the thing sold. or both according to its tenor.. even though he was not aware thereof. Issues: Whether or not the court a quo erred in holding that Lim cannot cancel the auto loan despite the failure in consideration due to the contested roadworthiness of the vehicle delivered by Odrada to him.. and undertook that on due presentment the checks which were negotiable instruments would be accepted or paid.. Ruling: We grant the petition.. RCBC admitted the existence of the payee and his then capacity to endorse. RCBC alone[28] filed this petition before the Court. However. was not proper for Lim to exercise the right of rescission since Odrada had already complied with the contract of sale by delivering the Montero while Lim remained delinquent in payment. the parties may reciprocally demand performance. Court of Appeals dismissed the appeal.. The vendor and vendee remain concurrently bound by specific obligations. the decision of the Court of Appeals became final and executory as to Lim. e states: "In a contract of sale. under the law. It may be treated as a promissory note with the bank as maker constitutes a written promise to pay on demand. the defective condition of the Montero was not a supervening event that would justify the dishonor of the manager's checks. Being the party primarily liable. in particular. Odrada's warranties . the trial court ruled that RCBC was liable to Odrada for the value of the manager's checks. when RCBC issued the manager's checks in favor of Odrada. Whether or not Lim can validly countermand the manager's checks in the hands of a holder who does not hold the same in due course. there is an implied warranty that the thing shall be free from any hidden faults or defects.. a manager's check is equivalent to cash and is really the bank's own check.". The vendor. is responsible for an implied warranty against hidden defects. the obligations between the parties do not cease upon delivery of the subject matter.

because the instrument . no contractual relation exists between the holder. malfunctioned despite repairs by petitioner. he discovered that the Montero was not roadworthy. the distinct feature of a manager's check is that it is accepted in advance. during the proceedings in the trial court...... upon its purchase. has the unconditional obligation to pay a manager's check to a holder in due course irrespective of any available personal defenses. However. Flores. if the holder of a manager's check is not a holder in due course. and (d) existence of the payee and his then capacity to endorse. a misrepresentation as to the Montero's roadworthiness constitutes a breach of warranty against hidden defects. as a result. (b) genuineness of the drawer's signature.against hidden defects continued even after the Montero's delivery. creates a privity of contract between the holder and the drawee so much so that the latter. Jurisprudence defines a manager's check as a check drawn by the bank's manager upon the bank itself and accepted in advance by the bank by the act of its issuance.. the drawee bank is not liable until it accepts. once he accepts. and the drawee. after it was delivered to respondent. a manager's check is accepted by the bank upon its issuance. In order for the holder to acquire title to the instrument.. Acceptance. However.although accepted in advance remains undelivered. the mere issuance of a manager's check does not ipso facto work as an automatic transfer of funds to the account of the payee. while this Court has consistently held that a manager's check is automatically accepted. a breach of warranty against hidden defects occurred when the vehicle. the check becomes the primary obligation of the bank and constitutes its written promise to pay the holder upon demand As a general rule. when Lim acquired possession. Prior to a bill's acceptance. the drawee admits the following: (a) existence of the drawer. Consequently. The drawee bank... (c) capacity and authority of the drawer to draw the instrument. a holder other than a holder in due course is still subject to defenses. becomes the party primarily liable on the instrument. once it accepts.. Supercars Management & Development Corporation v. the latter primarily binding itself to pay according to the tenor of its acceptance.. Lim's testimony was stricken off the record because he failed to appear during cross-examination. the doctrine that the deposit represented by a manager's check automatically passes to the payee is inapplicable. can the drawee bank interpose a personal defense of the purchaser? "the holder of a cashier's check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same. acceptance is the act which triggers the operation of the liabilities of the drawee (acceptor) under Section 62. of the Negotiable Instruments Law. the purchaser of a manager's check may validly ..."[57].. there still must have been effective delivery.. the mere issuance of a manager's check creates a privity of contract between the holder and the drawee bank. It is really the bank's own check and may be treated as a promissory note with the bank as its maker."[64].

the holder has no knowledge of any defect or infirmity of the instrument To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same." Since Odrada was not a holder in due course. on the other hand. x x x. The records show that Lim notified RCBC of the defective condition of the Montero before Odrada presented the manager's checks. he was already formally notified by RCBC the previous day of the cancellation of Lim's auto loan transaction. the law requires that a party must have acquired the instrument in good faith and for value. when Odrada redeposited the manager's checks on 19 April 2002. . RCBC also received a formal notice of cancellation of the auto loan from Lim and this prompted RCBC to cancel the manager's checks since the auto loan was the consideration for issuing the manager's checks. is defined as any consideration sufficient to support a simple contract. Odrada decided to deposit the manager's checks. RCBC acted in good faith in stopping the payment of the manager's checks. Section 58 of the Negotiable Instruments Law provides: "In the hands of any holder other than a holder in due course. the instrument becomes subject to personal defenses under the Negotiable Instruments Law. Odrada's action in depositing the manager's checks despite knowledge of the Montero's defects amounted to bad faith.countermand payment to a holder who is not a holder in due course. Hence. or knowledge of such facts that his action in taking the instrument would amount to bad faith.(b) That he became the holder of it before it was overdue. the drawee bank may refuse to pay the manager's check by interposing a personal defense of the purchaser. CBC may refuse payment by interposing a personal defense of Lim . Good faith means that the person taking the instrument has acted with due honesty with regard to the rights of the parties liable on the instrument and that at the time he. if such was the fact. Odrada's actions do not amount to good faith. Moreover. a negotiable instrument is subject to the same defenses as if it were non-negotiable. the person to whom it is negotiated must have had actual knowledge of the infirmity or defect. To be a holder in due course.took the instrument. and without notice that it has been previously dishonored. Accordingly. Value. the resolution of the present case requires a determination of the status of Odrada as holder of the manager's checks.(c) That he took it in good faith and for value. Instead of addressing the issue. a day after Lim had informed him that there was a serious problem with the Montero.(d) That at the time it was negotiated to him.that the title of Odrada had become defective when there arose a partial failure or lack of consideration. Section 52 of the Negotiable Instruments Law defines a holder in due course as one who has taken the instrument under the following conditions:(a) That it is complete and regular upon its face. Odrada attempted to deposit the manager's checks on 16 April 2002. the Court of Appeals gravely erred when it considered Odrada as a holder in due course. he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. RCBC acted in good faith in following the instructions of Lim.