Credit Transactions (Section 44~49)

Case 1
Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Banking Corporation
43 Phil. 678, 23 August 1922

Facts:
May 3, 1920, the plaintiff drew its check for P2,000 on the Hongkong and Shanghai Banking
Corporation (HSBC) with whom it had an account, payable to the order of Lazaro Melicor. E. M. Maasim
fraudulently obtained possession of the check, forged Melicor's signature, as an endorser, and then personally
endorsed and presented it to the Philippine National Bank (PNB) where the amount of the check was placed
to his credit. After having paid the check, PNB endorsed the check HSBC, which paid it, and charged the
amount of the check to the account of the plaintiff. About four months after the check was charged to the
account of the plaintiff, it developed that Lazaro Melicor, to whom the check was made payable, had never
received it, and that his signature, as an endorser, was forged by Maasim, who presented and deposited it to
his private account in the PNB. With this knowledge, the plaintiff promptly made a demand upon HSBC that
it should be given credit for the amount of the forged check, which the bank refused to do, and the plaintiff
commenced this action to recover the P2,000. The issues being joined, a trial was had and judgment was
rendered against the plaintiff and in favor of each of the defendants, hence, this instant appeal.

Issue:
Who is responsible for the refund to the drawer of the amount of the check drawn and payable to order,
when its value was collected by a third person by means of forgery of the signature of the payee?

Ruling:
The Court ruled that the drawee who ignored the forgery at the time of making the payment shall be the
one to refund the drawer.

Section 23 of Act No. 2031, known as the Negotiable Instruments Law, provides that when a signature
is forged or made without the authority of the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such signature, unless the party against
whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.

In the instant case, the money was on deposit in the HSBC, and it had no legal right to pay it out to
anyone except the plaintiff or its order. Here, the plaintiff ordered HSBC to pay the P2,000 to Melicor, and the
money was actually paid to Maasim and was never paid to Melicor, and he never personally endorsed the
check, or authorized any one to endorse it for him, and the alleged endorsement was a forgery. Hence, upon
the undisputed facts, it must follow that the Shanghai Bank has no defense to this action. It is admitted that
the PNB cashed the check upon a f orged signature, and placed the money to the credit of Maasim, who was
the forger. The PNB had no license or authority to pay the money to Maasim or anyone else upon a forged
signature. It was its legal duty to know that Melicor's endorsement was genuine before cashing the check.
 Credit Transactions (Section 44~49)
Case 2
Siy Cong Bieng & Co. vs. Hongkong & Shanghai Bank
56 Phil. 598, 05 March 1932

Facts:
Plaintiff sold hemp of abaca to a certain Otto Ranft for a certain price. Negotiable quedans together
with the covering invoice were sent by the plaintiff to Ranft, without the latter having paid for the hemp.
Subsequently, Ranft pledged the quedans to the defendant bank to secure the payment of the former’s pre-
existing debt. However, Ranft died on the evening of the day the quedans were delivered to defendant bank.
The plaintiff brought action against defendant bank to recover the quedans or their value.

Issue:
When the quedans were negotiated, defendant bank acquire valid title to them?

Ruling:
Yes, the Court held that the defendant bank did acquire valid title to such quedans.

Section 47 of the Warehouse Receipt Law provides that the the validity of the negotiation of a receipt is
not impaired by the fact that such negotiation was a breach of duty on the part of the person making the
negotiation, or by the fact that the owner of the receipt was induced by fraud, mistake, or duress to entrust the
possession or custody of the receipt to such person, if the person to whom the receipt was negotiated, or a
person to whom the receipt was subsequently negotiated, paid value therefor, without notice of the breach of
duty, or fraud, mistake, or duress."

In the instant case, the Court finds that the quedans in question were negotiable in form and pledged
by Ranft to the defendant bank to secure the payment of the pre-existing debt of Ranft. They were issued in
the name of Ranft and were duly indorsed by him in blank. It is the intention of the law to facilitate the use of
warehouse receipts as documents of title. The clear import of the afore quoted provisions is that if the
owner of the goods permits another to have the possession or custody of negotiable warehouse receipts
running to the order of the latter or to bearer, it is a representation of title upon which bona fide
purchasers for value are entitled to rely despite breaches of trust or violation of agreement on the part of the
apparent owner. Hence, it follows that on the delivery of the quedans to the bank, they were no longer the
property of Ranft (indorser) unless he liquidated his debt with defendant bank.
 Credit Transactions (Section 44~49)
Case 3
Roman vs. Asia Banking Corporation
46 Phil 705, 26 June 1924

Facts:
Felisa Roman notified Asia Banking Corporation (ABC) claiming the 576 bultos of tobacco which were
in the possession of the latter. U. de Poli issued a quedan, covering aforesaid 576 bultos of tobacco, to the
ABC. The aforesaid 576 bultos of tobacco are part and parcel of the 2,777 bultos purchased by U. de Poli from
Felisa Roman. U. de Poli certifies that he is the sole owner of the merchandise therein described. The receipt
is endorsed in blank. It is not marked "non-negotiable" or "not negotiable." The contract of sale is evident
which shows that De Poli received from Felisa Roman 2,777 bales of tobacco. The sale having been thus
consummated, the only lien upon the tobacco which Felisa Roman can claim is a vendor's lien. The tobacco
was transferred to the Asia Banking Corporation as security for a loan.

Issue:
Does the vendor’s lien prevail over the negotiable instrument?

Ruling:
No, the vendor’s lien does not prevail over the negotiable instrument.

Section 49 of the Warehouse Receipt Law provides that where a negotiable receipt has been issued for
goods, no seller’s lien or right of stoppage in transitu shall defeat the rights of any purchaser for value in good
faith to whom such receipt has been negotiated, whether such negotiation be prior or subsequent to the
notification to the warehouseman who issued such receipt of the seller’s claim to a lien or right of stoppage in
transitu. Nor shall the warehouseman be obliged to deliver or justified in delivering the goods to an
unpaid seller unless the receipt is first surrendered for cancellation.

In the instant case, the court ruled that the warehouse receipt in question is negotiable. Like any other
document, must be interpreted according to its evident intent and it is quite obvious that the deposit
evidenced by the receipt in this case was intended to be made subject to the order of the depositor and
therefore negotiable. the endorsement in blank of the receipt in controversy together with its delivery by U. de
Poli to the appellant bank took place on the very date of the issuance of the warehouse receipt, thereby
immediately demonstrating the intention of U. de Poli and of the appellant bank, by the employment of the
phrase "por orden del Sr. U. de Poli" to make the receipt negotiable and subject to the very transfer which he
then and there made by such endorsement in blank and delivery of the receipt to the bank. As hereinbefore
stated, the receipt was not marked "nonnegotiable." Under modern statutes the negotiability of warehouse
receipts has been enlarged, the statutes having the effect of making such receipts negotiable unless marked
"non-negotiable." We therefore hold that the warehouse receipt in controversy was negotiable and that the
rights of the endorsee thereof, the appellant, are superior to the vendor's lien of the appellee and should be
given preference over the latter.

Note:
Vendor’s Lien is the right of a seller to repossess the property sold until the buyer makes all payments for the full purchase price.
The property is the collateral given as security to the seller for the purchase price. It is sometimes used in connection with a
purchase money mortgage on real estate.

STOPPAGE IN TRANSITU, contracts. This is the name of that act of a vendor of goods, upon a credit, who, on learning that the
buyer has failed, resumes the possession of the goods, while they are in the hands of a carrier or middle-man, in their transit to the
buyer, and before they get, into his actual possession.