Caltex (Philippines), Inc. vs Court of Appeals 212 SCRA 448.

August 10, 1992

Facts:
                The defendant, Security Bank and Trust Company, a commercial banking institution issued 280 Certificate
of time deposit (CTDs) in favor of Angel Dela Cruz who deposited with the Security Bank the total amount of P1.2
Million. Angel delivered the CTDs to Caltex, in connection with his purchased of fuel products from the latter.
                Subsequently, Angel informed the bank that he lost all the CTDs, and thus executed an affidavit of loss to
facilitate the issuance of the replacement CTDs. Angel negotiated and obtained a loan from Security Bank in the
amount of P875, 000 and executed a notarized Deed of Assignment of Time Deposit.
                When Caltex presented said CTDs for verification with the bank and formally informed the bank of its
decision to pre-terminate the same, the bank rejected Caltex’ claim and demand as Caltex failed to furnish copies of
certain requested documents.  In 1983, dela Cruz’ loan matured and the bank set-off and applied the time deposits as
payment for the loan. Caltex filed a complaint which was dismissed on the ground that the subject certificates of
deposit are non-negotiable.

Issue:
1.       Whether or not the subject CTDs are negotiable.
2.       Whether or not petitioner is a holder in due course of the CTDs.

Ruling:
1.       Yes.
The CTDs in question are negotiable instruments as they meet the requirements of the law for negotiability as
provided for in Section 1 of the Negotiable Instruments Law.  The documents provide that the amounts deposited shall
be repayable to the depositor. And according to the document, the depositor is the "bearer." The documents do not
say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather,
the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at
the time of presentment.  However, petitioner cannot recover on the CTDs.   Although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement between it and dela Cruz, as ultimately
ascertained, requires both delivery and indorsement.  In this case, there was no indorsement as  the CTDs were
delivered not as payment but only as a security for dela Cruz' fuel purchases.
Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for
an instrument to become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.

2.       No.
The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its
own, delivered the CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank thereof at any
time. Unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation thereof for the true
purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and indorsement.
For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz'
purchases of its fuel products.

Any doubt as to whether the CTDs were delivered as payment for the fuel products or as a security has been
dissipated and resolved in favor of the latter by petitioner's own authorized and responsible representative himself.
Ang Tek Lian vs. CA
Facts:
            Ang Tek Lian knowing that he had no funds therefor, drew a check upon China Banking Corporation
payable to the order of “cash”. He delivered it toLee Hua Hong in exchange for money. The check was
presented by Lee Hua hong to the drawee bank for payment, but it w3as dishonored for insufficiency of
funds. With this, Ang Tek Lian was convicted of estafa.

Issue:
            Whether or not the check issued by Ang Tek Lian that is payable to the order to “cash” and not have
been indorsed by Ang Tek Lian, making him not guilty for the crime of estafa.

Held:
            No.Under Sec. 9 of NIL a check drawn payable to the order of “cash” is a check payable to bearer
and the bank may pay it to the person presenting it for payment without the drawer’s indorsement. However,
if the bank is not sure of the bearer’s identity or financial solvency, it has the right to demand identification
or assurance against possible complication, such as forgery of drawer’s signature, loss of the check by the
rightful owner, raising of the amount payable, etc. But where the bank is satisfied of the identity or
economic standing of the bearer who tenders the check for collection, it will pay the instrument without
further question; and it would incur no liability to the drawer in thus acting.

Philippine National Bank V. Erlando Rodriguez

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

 The association maintained current and savings accounts with Philippine

National Bank (PNB)

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

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

 It was 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 officers carried this out by forging the indorsement of the

named payees in the checks

 Rodriguez checks were deposited directly by PEMSLA to its savings account without any
indorsement from the named payees.  
 This was an irregular procedure made possible through the facilitation of Edmundo
Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. 

 this became the usual practice for the parties.

 November 1998-February 1999: spouses issued 69 checks totalling to P2,345,804.  These

were payable to 47 individual payees who were all members of PEMSLA

 PNB eventually found out about these fraudulent acts

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

 As a result, the PEMSLA checks deposited by the spouses were returned or

dishonored for the reason “Account Closed.” 

 The amounts were duly debited from the Rodriguez account

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

 PNB credited the checks to the PEMSLA account even without indorsements

= PNB violated its contractual obligation to them as depositors - so PNB should bear the losses

 RTC: favored Rodriguez

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

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

 ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious persons thereby
dismissing PNB from liability

HELD: NO.  CA Affirmed 

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

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

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

negotiation

 order instrument - requires an indorsement from the payee or holder

before it may be validly negotiated

 bearer instrument - mere delivery

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

 In a fictitious-payee situation, the drawee bank is absolved from liability

and the drawer bears the loss
 When faced with a check payable to a fictitious payee, it is treated as a bearer
instrument that can be negotiated by delivery

 underlying theory: one cannot expect a fictitious payee to negotiate the

check by placing his indorsement thereon

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

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

FACTS:
The manager and the treasurer of the defendant executed and delivered to the complainant
Philippine National Bank a written instrument with a judgment note on demand, PNB brought an
action and filed a motion confessing judgment.
ISSUE:
Whether or not a judgment note or a provision in a promissory note whereby in case the same is
not paid at maturity, the maker authorizes any attorney to and confess judgment thereon for the
principal amount with interest, costs and attorney’s fees, and waives all errors, rights to inquisition,
and appeal, and all property exemptions. Will it affect the negotiable character of the instrument?
RULING:
No, a judgment note will not affect the negotiable character of the instrument. However, judgment
note is not valid and effective. Warrants of attorney to confess judgment are void as against public
policy because they enlarge the field for fraud, under these instruments the promissor bargains
away his right a day in court, and the effect of instrument is to strike down the right of appeal
accorded by statute.
REPUBLIC PLANTERS BANK vs. CA - G.R. No. 93073
Republic Planters Bank issued 9 promissory notes signed by Shozo Yamaguchi (President) and Fermin Canlas (Treasurer) of
Worldwide Garment Manufacturing Inc. Yamaguchi and Canlas were authorized by the corporation to apply for credit facilities
with the bank in form of export advances and letters of credit or trust receipts accommodations. Three years after, the bank filed
an action to recover the sums of money covered by the promissory notes. Worldwide Garment Manufacturing changed its name to
Pinch Manufacturing Corp. Canlas alleged he was not liable personally for the corporate acts that he performed, and that the notes
were still blank when he signed them.

Issue: Whether or not the corporate treasurer is liable for the amounts in the promissory notes.

Held: Canlas is a co-maker of the promissory notes, under the law, and cannot escape liability arising therefrom. Inasmuch as the
instrument contained the words “I promise to pay” and is signed by two or more persons, said persons are deemed to be jointly
and severally liable thereon. As the promissory notes are stereotype ones issued by the bank in printed form with blank spaces
filled up as per agreed terms of the loan, following customary procedures, leaving the debtors to do nothing but read the terms and
conditions therein and to sign as makers or co-makers. Section 14 of the Negotiable Instruments Law, therefore, does not apply.
Canlas is solidarily liable with the corporation for the amount of the 9 promissory notes.

Sps. Evangelista vs. Mercator

Finance Corp.
FACTS:
On February 16, 1982, the petitioners Spouses Evangelista executed a mortgage in favor of
defendant Mercator Finance Corporation (MFC) for and in consideration of certain loans and/or
other forms of credit accommodation obtained from the mortgagee-defendant MFC to secure the
payment of the same and those others that the mortgagee might extend to the mortgagor,
Embassy Farms Inc. Petitioners, in their capacities and as officers of Embassy Farms Inc. signed
the promissory note and the subsequent Continuing Suretyship Agreement executed to guarantee
the indebtedness of Embassy Farms, and the succeeding promissory notes restructuring the loan.
Due to their failure to pay the obligation,  the properties were foreclosed and sold. After 10 years,
however, petitioners filed a complaint for annulment of titles of the properties sold.
ISSUE:
If there is an ambiguity in the wording of a promissory note, how should it be interpreted?
RULING:
A reading of the promissory note in question will show that there is no ambiguity even if the
petitioners insist that it does not convey their true intent in executing the document. Assuming that
there is an ambiguity, Section 17 of the Negotiable Instruments Law states: Where the language of
the instrument is ambiguous or there are omissions therein, the following rules of construction
apply:  x x x
(g) where an instrument containing the word “I promise to pay” is signed by two or more persons,
they are deemed to be jointly and severally liable thereon.

VICTORIA J. ILANO v. HON. DOLORES L. ESPAÑOL, et al.

 Alonzo is a trusted employee of Victoria Ilano. During those times that Ilano is in the Unied States
for medical check-up, Alonzo was entrusted with Ilano‘s Metrobank Check Book which contains
both signed and unsigned blank checks.
         A Complaint for Revocation/Cancellation of Promissory Notes and Bills of Exchange (Checks)
with Damages and Prayer for Preliminary Injunction or Temporary Restraining Order (TRO)
against Alonzo et al. before the Regional Trial Court of Cavite. Ilano contends that Alonzo, by
means of deceit and abuse of confidence succeeded in procuring Promissory Notes and signed
blank checks. Alonzo likewise succeeded in inducing Ilano to sign antedated Promissory Notes.
The RTC rendered a decision dismissing the complaint for lack of cause of action and failure to
allege the ultimate facts of the case. On appeal, the Court of Appeals affirmed the dismissal of the
complaint. Hence, this petition.
ISSUE:
Whether or not the Court erred in dismissing the complaint
HELD:
While some of the allegations may lack particulars, and are in the form of conclusions of law, the
elements of a cause of action are present. For even if some are not stated with particularity,
Ilano alleged 1) her legal right not to be bound by the instruments which were bereft of
consideration and to which her consent was vitiated; 2) the correlative obligation on the part of the
defendants-respondents to respect said right; and 3) the act of the defendants-respondents in
procuring her signature on the instruments through “deceit,” “abuse of confidence” “machination,”
“fraud,” “falsification,” “forgery,” “defraudation,” and “bad faith,” and “with malice, malevolence
and selfish intent.”
With respect to the checks subject of the complaint, it is gathered that, except for Check No.
0084078, they were drawn all against Ilano’s Metrobank Account No. 00703-955536-7 shows that
it was dishonored due to “Account Closed.” When Ilano then filed her complaint, all the checks
subject hereof which were drawn against the same closed account were already rendered valueless
or non-negotiable, hence, Ilano had, with respect to them, no cause of action.
With respect to above-said Check No. 0084078, however, which was drawn against another
account of Ilano, albeit the date of issue bears only the year 1999, its validity and negotiable
character at the time the complaint was filed was not affected.
It is, however, with respect to the questioned promissory notes that the present petition assumes
merit. For, Ilano’s allegations in the complaint relative thereto, even if lacking particularity, does
not as priorly stated call for the dismissal of the complaint.

Sesbreño v. Court of Appeals

FACTS
Petitioner Raul Sesbreño made a money market placement in the amount of P300,000.00 with the Philippine
Underwriters Finance Corporation (“Philfinance”). The latter issued a Certificate of Confirmation of Sale “without
recourse” from Delta Motors Corporation Promissory Note, a Certificate of securities indicating the sale to petitioner,
with the notation that the said security was in custodianship of Pilipinas Bank, andpost-dated checks payable with
petitioner as payee, Philfinance as drawer. Petitioner approached private respondent Pilipinas Bank and handed her a
demand letter informing the bank that his placement with Philfinance had remained unpaid and outstanding, and that
he in effect was asking for the physical delivery of the underlying promissory note. Pilipinas did not deliver the Note,
nor any certificate of participation in respect thereof, to petitioner.

ISSUES
(a) Whether or not Pilipinas Bank is liable for its action.
(b)Whether or not non-negotiable instruments are transferrable.

RULING
(1) YES. Private respondent Pilipinas bank is liable for damages plus legal interest thereon by arising out of its breach
of duty. By failing to deliver the Note to the petitioner as depositor-beneficiary of the thing deposited, Pilipinas
effectively and unlawfully deprived petitioner of the Note deposited with it. Whether or not Pilipinas itself benefitted
from such conversion or unlawful deprivation inflicted upon petitioner, is of no moment for present purposes.In the
case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with it when petitioner
first demanded physical delivery thereof. Instead of complying with the demand of the petitioner, Pilipinas purported to
require and await the instructions of Philfinance, in obvious contravention of its undertaking under the DCR to effect
physical delivery of the Note upon receipt of “written instructions” from petitioner Sesbreño .
(2) YES. A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent
an express prohibition against assignment or transfer written in the face of the instrument. It is important to bear in
mind that the negotiation of a negotiable instrument must be distinguished from the assignment or transfer of an
instrument whether that be negotiable or non-negotiable. Only an instrument qualifying as a negotiable instrument
under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone
where the negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being negotiated,
also be assigned or transferred. The legal consequences of negotiation as distinguished from assignment of a
negotiable instrument are, of course, different.

Consolidated Plywood, et. al. vs. IFC Leasing

Facts: Consolidated Plywood Industries Inc. (CPII) is a corporation engaged in the logging
business. It had for its program of logging activities for the year 1978 the opening of additional
roads, and simultaneous logging operations along the route of said roads, in its logging
concession area at Baganga, Manay, and Caraga, Davao Oriental.

For this purpose, it needed 2 additional units of tractors. Cognizant of CPII’s need and purpose,
Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm,
Industrial Products Marketing (IPM), a corporation dealing in tractors and other heavy equipment
business, offered to sell to CPII 2 “Used” Allis Crawler Tractors, 1 an HD-21-B and the other an
HD-16-B. After conducting said inspection, IPM assured CPII that the “Used” Allis Crawler
Tractors which were being offered were fit for the job, and gave the corresponding warranty of 90
days performance of the machines and availability of parts. With said assurance and warranty,
and relying on the IPM’s skill and judgment, CPII through Henry Wee and Rodolfo T. Vergara,
president and vice-president, respectively, agreed to purchase on installment said 2 units of
“Used” Allis Crawler Tractors. It also paid the down payment of P210,000.00. On 5 April 1978, IPM
issued the sales invoice for the 2 units of tractors. At the same time, the deed of sale with chattel
mortgage with promissory note was executed.

Barely 14 days had elapsed after their delivery when one of the tractors broke down and after
another 9 days, the other tractor likewise broke down. IPM sent to the jobsite its mechanics to
conduct the necessary repairs, but the tractors did not come out to be what they should be after
the repairs were undertaken because the units were no longer serviceable. Because of the
breaking down of the tractors, the road building and simultaneous logging operations of CPII were
delayed and Vergara advised IPM that the payments of the installments as listed in the promissory
note would likewise be delayed until IPM completely fulfills its obligation under its warranty.

Since the tractors were no longer serviceable, on 7 April 1979, Wee asked IPM to pull out the units
and have them reconditioned, and thereafter to offer them for sale. The proceeds were to be given
to IFC Leasing and the excess, if any, to be divided between IPM and CPII which offered to bear
1/2 of the reconditioning cost. No response to this letter was received by CPII and despite several
follow-up calls, IPM did nothing with regard to the request, until the complaint in the case was filed
by IFC Leasing against CPII, Wee, and Vergara. The complaint was filed by IFC Leasing against
CPII, et al. for the recovery of the principal sum of P1,093,789.71, accrued interest of P151,618.86
as of 15 August 1979, accruing interest there after at the rate of 12% per annum, attorney’s fees of
P249,081.71 and costs of suit.

CPII, et al. filed their amended answer praying for the dismissal of the complaint. In a decision
dated 20 April 1981, the trial court rendered judgment, ordering CPII, et al. to pay jointly and
severally in their official and personal capacities

On 17 July 1985, the Intermediate Appellate Court issued the decision affirming in toto the
decision of the trial court.

Issue: Whether the promissory note in question is a negotiable instrument.

Held: No. The pertinent portion of the note provides that “”FOR VALUE RECEIVED, I/we jointly
and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of
P1,093,789.71, Philippine Currency, the said principal sum, to be payable in 24 monthly
installments starting July 15, 1978 and every 15th of the month thereafter until fully paid.”
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a
promissory note “must be payable to order or bearer,” it cannot be denied that the promissory note
in question is not a negotiable instrument.

The instrument in order to be considered negotiable must contain the so called “words of
negotiability” — i.e., must be payable to “order” or “bearer.” These words serve as an expression
of consent that the instrument may be transferred. This consent is indispensable since a maker
assumes greater risk under a negotiable instrument than under a non- negotiable one. Without the
words “or order” or “to the order of,” the instrument is payable only to the person designated
therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the
advantages of being a holder of a negotiable instrument, but will merely “step into the shoes” of
the person designated in the instrument and will thus be open to all defenses available against the
latter.

Therefore, considering that the subject promissory note is not a negotiable instrument, it follows
that IFC Leasing can never be a holder in due course but remains a mere assignee of the note in
question. Thus, CPII may raise against IFC Leasing all defenses available to it as against IPM.
This being so, there was no need for CPII to implead IPM when it was sued by IFC Leasing
because CPII’s defenses apply to both or either of them.

`
 DELA VICTORIA V. BURGOS
245 SCRA 374
 

FACTS:
Sesbreno filed a case against Mabanto Jr. among other people wherein the court  decided  in  favor  of  the  plaintiff, 
ordering  the  defendants  to  pay former  a  definite  amount  of  cash.    The  decision  had  become  final  and
executory and a writ of execution was issued.  This was questioned in the CA  by  the  defendants.    In  the 
meanwhile,  a  notice  of  garnishment  was issued  to  petitioner  who  was  then  the  City  Fiscal.    She  was  asked 
to withhold  any  check  or  whatnot  in  favor  of  Mabanto  Jr.    The  CA  then dismissed  the  defendant’s  petition 
and  the  garnishment  was  commenced only to find out that petitioner didn't follow instructions of sheriff.  She is now
being held liable.
 

HELD:
Garnishment  is  considered  as  the  species  of  attachment  for  reaching credits belonging to the judgment debtor
owing to him from a stranger in litigation.  Emphasis is laid on the phrase belonging to the judgment debtor since it is
the focal point of resolving the issues raised.
 
As  Assistant  City  Fiscal,  the  source  of  Mabanto’s  salary  is  public  funds.  Under Section 16 of the NIL, every
contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of 
giving  effect  thereto.    As  ordinarily  understood,  delivery  means  the transfer of the possession of the instrument
by the maker or drawer with intent  to  transfer  title  to  the  payee  and  recognize  him  as  the  holder thereof.
 
The  petitioner  is  the  custodian  of  the  checks.    Inasmuch  as  said  checks were  in  the  custody  of  the 
petitioner  and  not  yet  delivered  to  Mabanto, they didn't belong to him and still had the character of public funds.  
The salary  check  of  a  government  officer  or  employee  doesn't  belong  to  him
before  it  has  been  physically  delivered  to  him.   Until  that time  the  check belongs to the government. 
Accordingly, before there is actual delivery of the check, the payee has no power over it, he cannot assign it without
the consent of the government.
 
*If  public funds  would be  allowed  to  be garnished,  then  basic  services  of the government may be hampered.

DEVELOPMENT BANK OF RIZAL V. SIMA WEI  

219 SCRA 736
 

FACTS:
Sima  Wei  executed  a  promissory  note  in  consideration  of  a  loan  secured from petitioner bank.  She was able to
pay partially for the loan but failed to  pay  for  the  balance.    She  then  issued  two  checks  to  pay  the  unpaid
balance but for some unexplainable reason, the checks were not received by  the  bank  but  ended  up  in  the 
hands  of  someone  else.    The  bank instituted  actions  against  Sima  Wei  and  other  people.    The  trial  court
dismissed the case and the CA affirmed this decision.
 

HELD:
A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a  species of
property.  Just  as a deed to a piece of land must be delivered in order to convey title to the grantee, so must  a 
negotiable  instrument  be  delivered  to  the  payee  in  order  to evidence  its  existence  as  a  binding  contract.   
Section  16  provides  that every contract on a negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto.  Thus,
the  payee  of  the  negotiable  instrument  acquires  no  interest  with  respect thereto until its delivery to him. 
Delivery of an instrument from the drawer to the payee, there can be no liability on the instrument.  Moreover, such
delivery must be intended to give effect to the instrument.

Metropol vs. Sambok

L-39641          February 28, 1983
De Castro, J.:

Facts:
            Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd.
Payable in 12 equal monthly installments with interest. 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. Sambok Motors co., a sister company of Ng Sambok Sons negotiated and indorsed the
note in favor of Metropol Financing & investment Corporation. Villaruel defaulted in the payment, upon
presentment of the promissory note he failed to pay the promissory note as demanded, hence Ng Sambok
Sons Motors Co., Ltd. notified Sambok as indorsee that the promissory note has been dishonored and
demanded payment. Sambok failed to pay. Ng Sambok Sons filed a complaint for the collection of sum of
money. During the pendency of the case Villaruel died. Sambok argues that by adding the words “with
recourse” in the indorsement of the note, it becomes a qualified indorser, thus, it does not warrant that in
case that the maker failed to pay upon presentment it will pay the amount to the holder.

Issue:
            Whether or not Sambok Motors Co is a qualified indorser, thus it is not liable upon the failure of
payment of the maker.

Held:
            No. A qualified indorserment constitutes the indorser a mere assignor of the title to the instrument. It
may be made by adding to the indorser’s signature the words “without recourse” or any words of similar
import. Such 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 by section 65 of
NIL. However, Sambok indorsed the note “with recourse” and even waived the notice of demand, dishonor,
protest and presentment.
Recourse means resort to a person who is secondarily liable after the default of the person who is
primarily liable. Sambok by indorsing the note “with recourse” does not make itself a qualified indorser but
a general indorser who is secondarily liable, because by such indorsement, it agreed that if Villaruel fails to
pay the not the holder can go after it. The effect of such indorsement is that the note was indorsed witout
qualification. A person who indorses without qualification engages that on due presentment, the note shall
be accepted or paid, or both as the case maybe, and that if it be dishonored, he will pay the amount thereof to
the holder. The words added by Sambok do not limit his liability, but rather confirm his obligation as
general indorser.  
 GEMPESAW V. CA
218 SCRA 682
 

FACTS:
Gempensaw was the owner of many grocery stores.  She paid her suppliers through  the  issuance  of  checks  drawn 
against  her  checking  account  with respondent  bank.    The  checks  were  prepared  by  her  bookkeeper  Galang. 
In the signing of the checks prepared by Galang, Gempensaw didn't bother
herself  in  verifying  to  whom  the  checks  were  being  paid  and  if  the issuances  were  necessary.    She didn't 
even verify  the  returned  checks  of the bank when the latter notifies her of the same.  During her two years in
business,  there  were  incidents  shown  that  the  amounts  paid  for  were  in excess of what should have been paid. 
It was also shown that even if the checks were crossed, the intended payees didn't receive the amount of the
checks.    This  prompted  Gempensaw  to  demand  the  bank  to  credit  her account for the amount of the forged
checks.  The bank refused to do so and this prompted her to file the case against the bank.     
 

HELD:
Forgery is a real defense by the party whose signature was forged.  A party whose signature was forged was never a
party and never gave his consent to  the  instrument.    Since  his  signature  doesn’t  appear  in  the  instrument, the
same cannot be enforced against him even by a holder in due course.  The drawee bank cannot charge the account
of the drawer whose signature was forged because he never gave the bank the order to pay.
 
In  the  case  at  bar  the  checks  were  filled  up  by  petitioner’s  employee Galang and were later given to her for
signature.  Her signing the checks made the negotiable instruments complete.  Prior to signing of the checks, there 
was  no  valid  contract  yet.    Petitioner  completed  the  checks  by signing them and thereafter authorized Galang to
deliver the same to their respective  payees.    The  checks  were  then  indorsed,  forged  indorsements thereon.   
 
As a rule, a drawee bank who has paid a check on which an indorsement has  been  forged  cannot  debit  the 
account  of  a  drawer  for  the  amount  of said  check.    An  exception  to  this  rule  is  when  the  drawer  is  guilty 
of negligence which causes the bank to honor such checks.  Petitioner in this case  has  relied  solely  on  the 
honesty  and  loyalty  of  her  bookkeeper  and never  bothered  to  verify  the  accuracy  of  the  amounts  of  the 
checks  she signed  the  invoices  attached  thereto.   And  though  she  received  her  bank statements,  she  didn't 
carefully  examine  the  same  to  double-check  her
payments.  Petitioner didn't exercise reasonable diligence which eventually led to the fruition of her bookkeeper’s
fraudulent schemes.

Negotiable Instruments Case Digest: Vicente R.

De Ocampo V. Gatchalian (1961)
 G.R. No. L-26767   February 22, 1968

Lessons Applicable: Rights of the holder (Negotiable Instruments Law)

FACTS:
 Sept 8 1953 evening:  Anita C. Gatchalian was looking for a car for the use of her husband
and the family and Manuel Gonzales who was accompanied by Emil Fajardois (personally
known to Anita) offered her a car
 Manuel Gonzales represented to defendant Anita that he was duly authorized
by Ocampo Clinic, the owner of the car, to look for a buyer and negotiate for and accomplish
the sale, but which facts were not known to Ocampo

 September 9 1953 
 Anita requested Manuel to bring the car the day following together with
the certificate of registration of the car so that her husband would be able to see same
 Manuel Gonzales told her that unless there is a showing that the party interested in
the purchase is ready he cannot bring the certificate of registration
 Anita gave him a check which will be shown to the owner as evidence of buyer's GF
in the intention to purchase, it being for safekeeping only of Manuel and to be returned
 For the hospitalization of the wife of Manuel, he paid the check to Ocampo clinic
 P441.75 - payment of said fees and expenses 
 P158.25 -given to Manual as balance
 Next Day: Manual did not appear so Anita issued a stop payment order
 Anita filed with the Office of the City Fiscal of Manila, a complaint for estafa against Manuel

 Appeal Manuel contends that:

 the check is not a negotiable instrument, under the facts and circumstances stated
in the stipulation of facts - no delivery (Section 16, Negotiable Instruments Law) because only
for safekeeping (conditional delivery)
 Ocampo is not a holder in due course 
 no negotiation prior to acquiring the check 
 check is not a personal check of Manuel 
 could have inquired why a person would use the check of another to
pay his own debt, Gatchalian being personally acquainted with V. R. de Ocampo

ISSUES: 

1. W/N Ocampo is a holder in due course - NO

2. W/N prima facie holder in due course applies - NO

HELD: 

1. NO
 Sec. 191
 holder - payee or indorsee of a bill or note, who is in possession of it, or the bearer 

 Sec. 52
 holder in due course - holder who has taken the instrument under the ff conditions: 
1. That it is complete and regular on its face
2. That he became the holder of it before it was overdue, and without notice that it had
been previously dishonored, it such was the fact. 
 3. That he took it in good faith and for value. 
4. That at the time it was negotiated to him he had no notice of any infirmity in
the instrument or defect in the title of the person negotiating it

 circumstances
 the amount of the check did not correspond exactly with the obligation of Matilde
Gonzales to Dr. V. R. de Ocampo
 check had two parallel lines in the upper left hand corner, which practice means
that the check could only be deposited but may not be converted into cash
 It was payee's duty to ascertain from the holder Manuel what the nature of his title to the
check was or the nature of his possession. - failure: guilty of gross neglect and legal absence
of GF
 In order to show that the defendant had 'knowledge of such facts that his action in taking
the instrument amounted to BF it is not necessary to prove that the defendant knew the exact
fraud 
 It is sufficient that the buyer of a note had notice or knowledge that the note was in
some way tainted with fraud

     2. NO

 Sec. 59
 every holder is deemed prima facie to be a holder in due course
 a possessor of the instrument is prima facie a holder in due course does not apply because
there was a defect in the title of the holder (Manuel Gonzales) because the instrument is not
payable to him or to bearer. 
 suspicious circumstance

YANG V. COURT OF APPEALS

409 SCRA 159
 

FACTS:
Yang and Chandimari entered into an agreement that the latter would issue to the former a manager’s check in
exchange for two checks that Yang has payable  to  the  order  of  David.    The  difference  in  amount  would  be  the
profit  of  the  two  of  them.    It  was  further  agreed  upon  that  Yang  would
secure a dollar draft, which Chandimari would exchange with another dollar draft  to  be  secured  from  a  Hong 
Kong  bank.    At  the  agreed  time  of rendezvous,  it  was  reported  by  Yang’s  messenger  that  Chandimari  didn't
show up and the drafts and checks were allegedly stolen.  This wasn't true however.  Chandimari was able to get hold
of the drafts and checks.  He was  even  able  to  deliver  to  David  the  two  checks  and  was  able  to  get money in
return.  Consequently, Yang asked for the stoppage of payment of  the  checks  she  believe  to  be  lost,  relying  on 
the  report  of  her messenger.  The stoppage order was eventually lifted by the banks and the drafts and checks were
able to be encashed.  Yang then filed an action for injunction  and  damages  against  the  banks,  Chandimari  and 
David.    The
trial court and CA held in favor of David as a holder in due course.  
 
HELD:
Every holder of a negotiable instrument is presumed to be a holder in due course.  This is specially true if one is a
holder because he is the payee or indorsee of the instrument.  In the case at bar, it is evident that David was the 
payee  of  the  checks.    The  prima  facie  presumption  of  him  being  a holder  in  due  course  is  in  his  favor.   
Nonetheless,  this  presumption  is disputable.  On whether he took the check under the conditions set forth in
Section  52  must  be  proven.    Petitioner  relies  on  two  arguments  on  why
David  isn’t  a  holder  in  due  course—first,  because  he  took  the  checks without  valuable  consideration;  and 
second,  he  failed  to  inquire  on Chandimari’s title to the checks given to him. 
The law gives rise to the presumption of valuable consideration.  Petitioner has  the  burden  of  debunking  such 
presumption,  which  it  failed  to  do  so.  Her  allegation  that  David  received  the  checks  without  consideration  is
unsupported and devoid of any evidence.
 
Furthermore, petitioner wasn't able to show any circumstance which should have placed David in inquiry as to why
and wherefore of the possession of the  checks  by  Chandimari.    David  wasn't  a  privy  to  the  transactions
between  Yang  and  Chandimari.    Instead,  Chandimari  and  David  had  the agreement between themselves of the
delivery of the checks.  David even inquired with the banks on the genuineness of the checks in issue.  At that time,
he wasn't aware of any request for the stoppage of payment.  Under
these circumstances, David had no obligation to ascertain from Chandimari what the nature of the latter’s title to the
checks was, if any, or the nature of his possession.