Professional Documents
Culture Documents
Nego Cases
Nego Cases
(Negotiability; money order not negotiable)
FACTS:
Enrique Montinola sought to purchase from the Manila Post Office 10 money orders of P200
each payable to E.P. Montinola. After the postal teller made out money orders 124685, 687695,
Montinola offered to pay for them with a private check which were not generally accepted in
payment of money orders. The teller advised him to see the Chief of the money order division.
But instead, Montinola left the building with his own check and the 10 money orders without
the knowledge of the teller.
Upon discovery of the disappearance of the unpaid money orders, a message was sent to all
postmasters and notice was served upon all banks to not pay anyone with the money orders
aforesaid if presented for payment. Bank of America received a copy of the notice 3 days later.
Money order 124688 was received by PH Education Co (PEC). it deposited the same with Bank
of America. One day later, the latter cleared it with the Bureau of Posts and received from the
latter its face value of P200.
Soriano, chief of the money order division, notified Bank of America that money order 124688
was irregularly issued and thus the amount it represented was deducted from the bank’s
clearing account. Bank of America debited PEC’s account with the same amount. PEC
requested the postmaster general to reconsider the action of his office deducting the P200 from
the clearing account of Bank of America, but this was denied. This was sustained by Sec. of
Public Works.
PEC filed an action against Soriano et al. with the Municipal Court of Manila. The court ordered
that the notice to Bank of America deducting the P200 from the bank’s clearing account be
countermanded. On appeal to CFI, the complaint was dismissed. Hence this petition.
ISSUE:
Whether a postal money order is negotiable.
HELD: NO.
Our postal statutes were patterned after statutes in US. The weight of authority in US is that
postal money orders are NOT negotiable instruments, the reason being that in establishing
and operating a postal money order system, the government is not engaging in commercial
transactions but merely exercises a GOVERNMENTAL POWER for the public benefit.
Some restrictions imposed upon money orders by postal laws and regulations are inconsistent
with the character of negotiable instruments. For instance, such regulations usually provide for
not more than one endorsement. Payment of money orders may be withheld under a variety of
circumstances.
Of particular application to the postal money order here are the conditions laid down in the letter
of the Director of Posts to Bank of America for redemption of postal money orders received by it
from its depositors. The condition imposed is that “in cases of adverse claim, the money order
or money orders involved will be returned to the bank and the amount will be refunded to the
postmaster, who reserves the right to deduct the value thereof from any amount due to the bank if
necessary.” The condition imposed to enable the bank to enjoy the facilities theretofore enjoyed
by its depositors were accepted by the Bank. It is thus bound by them.
2. Caltex (Philippines), Inc. v. CA, GR 97753, August 10, 1992, Regalado, J. (Negotiability;
CTDs were negotiable, but not negotiated, merely used for security)
FACTS:
On various dates, Security Bank and Trust Company (SB) issued 280 certificates of time deposit
(CTD) in favor of one Angel who deposited with SB P1,120,000. Angel delivered the CTDs to
Caltex in connection with his purchased fuel products. Angel informed Tiangco, branch
manager, that he lost all the CTDs. Tiangco advised Angel to submit a notarized affidavit of loss
if he wanted a replacement of the lost CTDs. Angel submitted said affidavit, and 280
replacement CTDs were issued in his favor.
Aranas, Caltex credit manager, went to SB and presented for verification the CTDs declared lost
by Angel. Caltex informed SB that it wanted to preterminate the CTDs. SB rejected Caltex’s
claim for payment of the value of the CTDs. When Angel’s loan matured, SB setoff and applied
the time deposits to the payment of the matured loan. Thus, Caltex sued SB, praying that SB be
ordered to pay P1,120,000 plus interest and damages. The trial court dismissed the complaint. On
appeal, CA affirmed the dismissal. Hence this petition.
ISSUE:
Whether Caltex can recover the CTDs given to it by Angel after replacement CTDs were used to
offset the loan of Angel with the issuing bank SB after Angel submitted an affidavit of loss of
said CTDs when it used them to pay Caltex for fuel product purchases.
HELD: NO.
The CTD reads:
This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR
THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00 CTS Pesos,
Philippine Currency, repayable to said depositor 731 days. after date, upon presentation
and surrender of this certificate, with interest at the rate of 16% per cent per annum.
CA ruled that the CTD is nonnegotiable. “Bearer” is supposedly for the name of the depositor,
and after it, “has deposited” a certain amount follows. The amount shall be “repayable to said
depositor.” Thus, the instrument is payable not to whoever purports to be the “Bearer” but only
to the specified person indicated therein, the depositor.
We disagree. The CTDs are negotiable instruments. S1 of the Negotiable Instruments Law (Act
2031) enumerates the requisites for an instrument to be negotiable:
(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.
The CTDs meet the requirements. The parties’ bone of contention is as to requisite (d). Tiangco
testified that the depositor referred to in the CTDs is no other than Angel. The rule is that the
negotiability of an instrument is determined from the writing or from the face of the instrument
itself. In the construction of a bill or note, the intention of the parties controls if it can be
legally ascertained. While the writing may be read in light of surrounding circumstances to better
understand the intent and meaning of the parties, the writing is the only outward and visible
expression of their meaning and no other words are to be added to it or substituted in its stead.
What the parties meant must be determined by what they said.
The documents provide that the amounts deposited shall be repayable to the depositor. But
according to the document, who is the depositor? It is the BEARER. The documents do not
say that the depositor is Angel and that the amounts deposited are repayable specifically to
him. Rather, the amounts are to be repayable to the bearer of the documents or who may be the
bearer at the time of presentment. If SB really intended to pay Angel only, it could have so
expressed that fact in categorical terms instead of having “Bearer” on the space provided for the
name of the depositor. Thus, Tiangco merely declared that Angel is the depositor “insofar as
the bank is concerned,” but other parties not privy to the transaction between them would
not know that the depositor is not the bearer. The situation would require any party dealing
with the CTDs to go behind the plain import of what is written thereon to unravel the agreement
of the parties. This need for resort to extrinsic evidence is what is sought to be avoided by the
Negotiable Instruments Law and calls for the application of the rule that the interpretation of
obscure stipulations in a contract shall not favor the party who caused the obscurity.
Can Caltex recover the CTDs? No. Angel, whom Caltex chose not to implead in this suit for
some reason, delivered the CTDs to Caltex without informing SB at any time. Although the
CTDs are bearer instruments, a VALID NEGOTIATION thereof for the true purpose and
agreement between it and Angel requires both DELIVERY and INDORSEMENT. (*There
was no indorsement in this case, which is needed even if bearer instrument because it was given
as security.)
Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from
one person to another in such a manner as to constitute the transferee the holder thereof.
and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the
bearer thereof. Here, there was no negotiation in the sense of a transfer of legal title to the
CTDs. The delivery only as security for the purchases of Angel could at the most constitute
Caltex as a HOLDER FOR VALUE by reason of his lien. A negotiation for such purpose
cannot be effected by mere delivery of the instrument since the terms thereof and the subsequent
disposition of such security in the event of nonpayment of the principal obligation must be
contractually provided for.
Where the holder has a lien on the instrument arising from contract, he is a holder for value to
the extent of his lien. As such holder of collateral security, he would be a pledgee. Since the
effects thereof are not provided by the NIL, it is governed by NCC provisions on pledge of
incorporeal rights:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be
pledged. The instrument proving the right pledged shall be delivered to the creditor, and
if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the
thing pledged and the date of the pledge do not appear in a public instrument.
Caltex failed to show any evidence of any contract of pledge or guarantee agreement between it
and Angel. Thus, the mere delivery (*without indorsement) of the CTDs did not legally vest in
Caltex any right binding upon SB. The requirement in Art. 2096 is a rule of substantive law
prescribing a condition without which the execution of a pledge contract cannot affect third
persons adversely.
On the other hand, the assignment of CTDs by Angel to SB was embodied in a public
instrument. (Art. 1625. An assignment of credit xxx shall produce no effect against third persons,
unless it appears in a public instrument, xxx.) SB complied with Art. 1625. Thus, as between
Caltex and SB, SB has the better right over the CTDs.
In turn, Golden allowed Eduardo to withdraw from his own account, collecting P1,167,500 from
the proceeds of the apparently cleared warrants. Metrobank then informed Golden that 32 of the
warrants had been dishonored by the Bureau of Treasury and demanded Golden to refund the
amount it had previously withdrawn. This was rejected. Metrobank sued Golden in RTC. RTC
dismissed the complaint. CA affirmed on appeal. Hence this petition.
ISSUE:
Whether Metrobank may recover from Golden the withdrawals made by Eduardo after
Metrobank allowed Golden to make withdrawals from treasury warrants first deposited by
Eduardo to Golden then deposited by Golden to Metrobank for clearing even if the warrants
were yet uncleared which warrants were eventually dishonored.
HELD: NO.
Metrobank was negligent in giving Golden the impression that the treasury warrants had been
cleared and that it was then safe to let Eduardo withdraw the proceeds thereof from his account
with Golden. Without such assurance, Golden would not have allowed the withdrawals. With
such assurance, there was no reason not to allow the withdrawal. Golden might even have
incurred liability by refusing to return the money that to all appearances belonged to the
depositor.
The argument that Golden should have exercised more care in checking the personal
circumstances of Eduardo before accepting his deposit does not hold water. It was Eduardo who
was entrusting the warrants, not Golden that was extending him a loan. In contrast, Metrobank
was careless. There was no reason why it should not have waited until the warrants were cleared.
Yet despite the lack of clearance and the fact that it had not received a single centavo from the
proceeds of the warrants, it allowed Golden to withdraw thrice from the uncleared treasury
warrants of P968k.
The treasury warrants are not negotiable instruments. Clearly stamped on their face is the word
“nonnegotiable”. Moreover, it is indicated that they are payable from a particular fund, Fund
501. S1 and S3 of the Negotiable Instruments Law are pertinent:
Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must
conform to the following requirements:
Xxx
(b) Must contain an unconditional promise or order to pay a sum certain in money;
Xxx
Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is
unconditional within the meaning of this Act though coupled with —
Xxx
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of payment to be made on the warrants makes the
order or promise to pay NOT UNCONDITIONAL and the warrants nonnegotiable. The
exception in S3 applies. Thus, Metrobank cannot contend that by indorsing the warrants in
general, Golden assumed that they were genuine in accordance with S66 of NIL. The simple
reason is that this law is not applicable to the nonnegotiable warrants. The indorsement was
made by Gloria not to guarantee the genuineness of the warrants but merely to deposit them with
Metrobank for clearing.
4. Raul Sesbreño v. CA, GR 89252, May 24, 1993, Feliciano, J. (Negotiability; instruments,
negotiable or nonnegotiable, may also be assigned or transferred)
FACTS:
Sesbreño made a money market placement of P300k with the PH Underwriters Finance
Corporation (Philfinance). Philfinance issued a certificate of confirmation of sale of one Delta
Motors Corporation Promissory Note (DMC PN) 2731, certificate of securities receipt indicating
the sale of DMC PN 2731 to Sesbreno with the notation that said security was in custodianship
of Pilipinas Bank as per Denominated Custodian Receipt (DCR) 10805, and postdated checks
with Sesbreño as payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee
for P304,533.33. Sesbreño sought to encash the checks, but they were dishonored. Philfinance
delivered to Sesbreño DCR 10805 issued by private respondent Pilipinas Bank (Pilipinas),
confirming that as duly custodian bank and upon instruction of Philfinance, Pilinas had in its
custody the securities.
Sesbreno gave Elizabeth de Villa of Pilipinas a demand letter informing Pilipinas that his
placement with Philfinance remained unpaid and that he was asking for physical delivery of the
promissory note. Pilipinas never released DMC PN 2731 nor any other instrument to Sesbreno.
Sesbreno made a written demand upon private respondent Delta for the partial satisfaction of
DMC PN 2731, explaining that Philfinance, as payee, had assigned to him the note to the extent
of P307,933.33. Delta denied liability, explaining that it had agreed with Philfinance to offset
DMC PN 2731 against Philfinance PN in favor of Delta.
Since Sesbreno failed to collect his investment and interest, he filed an action for damages with
RTC against Delta and Pilipinas. The RTC dismissed the complaint. CA denied the appeal,
finding that it was Philfinance which was liable, but since it was not impleaded, CA had no
jurisdiction. Hence this petition.
ISSUE:
Whether Sesbreno may recover on Delta’s promissory note given by Delta to Philfinance and
which in turn was assigned by Philfinance to Sesbreno where Sesbreno informed Delta of such
assignment.
HELD: NO.
Sesbreno admits that DMC PN 2731 was nonnegotiable but contends that the note had been
validly transferred in part to him by assignment and thus, Delta as debtormaker of the note, was
obligated to pay him. Delta claims that DMC PN 2731 was not intended to be negotiated or
transferred by Philfinance because of the “nonnegotiable” stamped on it.
The NEGOTIATION of a negotiable instrument must be distinguished from the
ASSIGNMENT or transfer of an instrument whether negotiable or nonnegotiable. Only a
negotiable instrument may be negotiated either by indorsement with delivery, or by delivery
alone if the instrument is in bearer form. A negotiable instrument may, however, instead of
being negotiated, also be assigned or transferred. The legal consequences are different. A
nonnegotiable instrument may not be negotiated, but it may be assigned or transferred without
an express prohibition written in the face of the instrument.
Delta claims that Philfinance partially assigned DMC PN 2731 without its consent. But such
consent was not necessary for the validity of the assignment to Sesbreno. Its claim that since
there was conventional subrogation, consent is needed, was not clearly established. It released
DMC PN 2731 to Philfinance, an entity engaged in the business of buying and selling debt
instruments and other secutirites, and more generally, in money market transactions. The issuer
of a commercial paper in the money market necessarily knows in advance that it would be
expeditiously transacted and transferred to any investor/lender without need of notice to the
issuer.
As to Delta’s claim of compensation or offsetting between DMC PN 2731 and Philfinance PN
143A, at the time Philfinance sold part of its rights under DMC PN 2731 to Sesbreno on
February 9, 1981, no compensation had as yet taken place and indeed none could have taken
place. The NCC provides for the requirements of compensation:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.
On February 9, 1981, neither DMC PN 2731 nor Philfinance PN 143A was due. Also, the
assignment to Sesbreno would have prevented compensation if it had taken place to the extent
of P304,533.33 because upon the assignment to Sesbreno, Philfinance and Delta would have
ceased to be creditors and debtors of each other in their own right to the extent of the
amount assigned by Philfinance to Sesbreno. Thus, the assignment to Sesbreno was valid to the
extent of the portion assigned.
However, Sesbreno notified Delta of the fact of assignment to him only on July 14, 1981, after
the maturity of both DMC PN 2731 and Philfinance PN 143A, after compensation had taken
place by operation of law because the offsetting instruments had both reached maturity.
The rights of the assignee are not greater than the rights of the assignor. The assignee is merely
substituted in place of the assignor and the assignee acquires his rights subject to the equities, i.e.
defenses, which the debtor could have set up against the assignor before notice of assignment
was given to the debtor. NCC provides:
Art. 1285: xxx
If the creditor communicated the cession to him but the debtor did not consent thereto,
the latter may set up the compensation of debts previous to the cession, but not of
subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he
had knowledge of the assignment .
Art. 1626 states that the “debtor who, before having knowledge of the assignment, pays his
creditor, shall be released from the obligation.
At the time Delta was notified of the assignment, DMC PN 2731 had already been discharged
by compensation. Since the assignor Philfinance could not have then compelled payment
anew by Delta of DMC PN 2731, Sesbreno, as assignee of Philfinance, is also disabled from
collecting from Delta the portion of the note assigned to him. Of course, Philfinance remains
liable to Sesbreno under the terms of the assignment made by Philfinance to Sesbreno.
5. Firestone Tire & Rubber Company of the PH v. CA, GR 113236, March 05, 2001,
Quisumbing, J. (Negotiability; withdrawal slips are not negotiable; negotiability=freedom
to circulate freely as substitutes for money)
FACTS:
Luzon Savings Bank (LSB) has as one of its clientdepositors the Fojas Arca Enterprises
Company (FAEC). FAEC maintains a special savings account with LSB, the latter authorized
withdrawals therefrom thru withdrawal slips supplied by LSB to FAEC. FAEC entered into a
franchise dealership agreement with Firestone where FAEC has the privilege to purchase on
credit and sell Firestone’s products. Pursuant to the agreement, FAEC purchased on credit
Firestone products worth P4.896M. in payment, FAEC delivered to Firestone six withdrawal
slips drawn upon LSB. These were deposited by Firestone with its account in Citibank. All were
honored and paid by LSB. This made Firestone believe that succeeding withdrawal slips would
also be honored. Thus, Firestone extended to FAEC other purchases on credit of its products.
FAEC purchased Firestone products on credit again and as payment delivered to Firestone 4
withdrawal slips worth P1,198,092.8, P940k, P880k, P981k. But only the P981k and P940k
withdrawal slips were honored and paid by LSB. The P880k and P1.198M slips were
dishonored. Thus, Citibank debited Firestone’s account for P2.078M. Firestone averred that its
pecuniary losses was caused by LSB’s gross negligence. It demanded LSB for the satisfaction
of the damages suffered by it. LSB refused, thus this complaint.
LSB claims that it is not involved in the transaction between FAEC and Firestone. It claimed that
the withdrawal slips were not treated like checks, but LSB only verified whether the signatures
therein were authentic and whether the deposit is sufficient to cover the withdrawal. The RTC
dismissed the complaint. Firestone appealed to CA, which denied appeal and affirmed the RTC.
Hence this petition.
ISSUE:
Whether LSB is liable for damages to Firestone.
HELD: NO.
FAEC purchased tires from Firestone with withdrawal slips drawn upon FAEC savings with
LSB. Firestone deposited these slips with Citibank. Citibank credited the same to Firestone’s
account then presented the slips for payment to LSB. Citibank informed Firestone that the slips
abovementioned were refused payment due to insufficiency of FAEC funds 6 months after
FAEC purchased from Firestone. Citibank then debited the amount of the slips from Firestone’s
account, causing the alleged pecuniary damage.
Firestone admits that the withdrawal slips were nonnegotiable. Thus, the rules governing the
giving of immediate notice of dishonor of negotiable instruments do not apply in this case.
Thus, LSB was under no obligation to give immediate notice that it would not make payment on
the withdrawal slips. Citibank could not expect the slips to be treated as checks by other
entities. Payment or notice of dishonor from LSB could not be expected immediately in contrast
to the situation involving checks.
Citibank, with knowledge that LSB honored and paid the previous slips, automatically credited
Firestone’s account. Citibank could not have missed the nonnegotiable nature of the slips. The
essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its
freedom to circulate freely as a substitute for money. The slips lacked this character.
The slips were not checks. Citibank was not bound to accept them as a valid mode of deposit.
But having erroneously accepted them as such, Citibank and Firestone must bear the risks
attendant to the acceptance of these instruments. They could not shift the risk and hold LSB
liable for their mistake.
6. Juanita Salas v. CA, GR 76788, January 22, 1990, Fernan, CJ. (Negotiability;
Assignment of credit “step into the shoes”, thus all defenses of assignor available to
assignee; negotiated defenses of assignor no longer available to assignee)
FACTS:
Salas bought a motor vehicle from Violago Motor Sales Corporation (VMS) for P58k as
evidenced by a promissory note. The note was endorsed to Filinvest Finance & Leasing
Corporation (FFL) which financed the purchase. Salas defaulted in her installments allegedly due
to a discrepancy in the engine and chassis numbers of the vehicle delivered to her and those
indicated in the sales invoice, cert of registration, and deed of chattel mortgage. This prompted
private respondent FFL to sue her for sum of money in RTC. The RTC ordered Salas to pay
P28k with interest. Both parties appealed to CA. CA ordered Salas to pay the remaining balance
of P54k after paying 2 installments of P3.2k of the total P58k. Hence this petition.
ISSUE:
Whether Salas is liable to FFL for the payment of the amount in the promissory note payable to
VMS indorsed to FFL where Salas claims that the transaction giving rise to the need to pay with
the promissory note is void because of fraud.
HELD: YES.
Salas claims fraud, bad faith, and misrepresentation by VMS which supposedly released Salas
from any liability to FFL who should instead sue VMS.
The pivotal issue is whether the promissory note is a negotiable instrument which will bar
completely all the available defenses of Salas against FFL. Salas’ liability on the promissory
note is clearly established. What is involved is not a simple case of assignment of credit where
the assignee merely steps into the shoes of, is open to all defenses available against and can
enforce payment only to the same extent as, the assignorvendor.
To be negotiable, an instrument must contain the socalled “WORDS OF NEGOTIABILITY”
must be PAYABLE TO “ORDER” or “BEARER”. Under S8 of NIL, there are only 2 ways by
which an instrument may be payable to order. There must always be a specified person named
in the instrument and the bill or note is to be paid to the person designated in the instrument
or to any person to whom he has indorsed and delivered the same. Without the words “or
order” or “to the order of”, the instrument is payable only to the person designated therein and is
thus nonnegotiable. Any subsequent purchaser 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 thus be open to all available defenses against the latter.
Here, the promissory note is negotiable. The note reads:
For value received, I/We jointly and severally, promise to pay Violago Motor Sales
Corporation or order , at its office in San Fernando, Pampanga, the sum of FIFTY
EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT & 201/100 ONLY
(P58,138.20) Philippine currency, which amount includes interest at 14% per
annum based on the diminishing balance, the said principal sum, to be payable, without
need of notice or demand, in installments of the amounts following and at the dates
hereinafter set forth, to wit: P1,614.95 monthly for "36" months due and payable on the
21st day of each month starting March 21, 1980 thru and inclusive of February 21, 1983.
P_________ monthly for ______ months due and payable on the ______ day of each
month starting _____198__ thru and inclusive of _____, 198________ provided that
interest at 14% per annum shall be added on each unpaid installment from maturity
hereof until fully paid.
The instrument complies with the requisites under NIL: 1) it is in writing and signed by the
maker Salas, 2) it contains an unconditional promise to pay P58k, 3) it is payable at a fixed or
determinable future time which is “P1,614.95 monthly for 36 months due and payable on the 21 st
day of each month starting March 21, 1980 thru and inclusive of Feb 21, 1983,” 4) it is payable
to VMS or order, and as such 5) the drawee is named or indicated with certainty.
It was negotiated by indorsement in writing on the instrument itself payable to the order of FFL
and it is an indorsement of the entire instrument. FFL is thus a holder in due course, having
taken the instrument under the following conditions: 1) it is complete and regular upon its face;
2) it became the holder thereof before it was overdue, and without notice that it had previously
been dishonored; 3) it took the same in good faith and for value; and 4) when it was negotiated to
Filinvest, the latter had no notice of any infirmity in the instrument or defect in the title of VMS
Corporation.
7. Ang Tek Lian v. CA, GR L2516, September 25, 1950, Bengzon, J. (Payable to Bearer)
FACTS:
Ang Tek Lian was convicted of estafa in CFI and CA. It appears that, knowing he had no funds
therefor, Ang Tek Lian drew a check upon the China Banking Corporation for P4k payable to
the order of “cash”. He delivered it to Lee Hua Hong in exchange for money which the latter
handed in act. The check was dishonored for insufficiency of funds, the balance of Lian being
only P335. Despite repeated efforts to notify him that the check was dishonored, Lian could not
be located until he was summoned by the fiscal in view of the estafa complaint filed against him.
ISSUE:
Whether under the facts, estafa was committed.
HELD: YES.
Art. 315, par. (d) subsection 2 of RPC punishes swindling committed by “post dating a check, or
issuing such check in payment of an obligation the offender knowing that at the time he had no
funds in the bank, or the funds deposited by him in the bank were not sufficient to cover the
amount of the check, and without informing the payee of such circumstances". Under this
provision, Lian was properly held liable.
It is argued that as the check was made payable to cash and had not been endorsed by Lian, he
is not guilty. Since by uniform practice of all PH banks that a check so drawn is dishonored, Lee
knew that the check would be dishonored upon presentment. Thus, Lian did not act fraudulently.
But we are not aware of the uniformity of such practice. While there are cases where the bank
required the drawer’s indorsement before honoring a check payable to cash, there are cases too
where no such requirement was made, depending upon the circumstances of each transaction.
Under NIL (S9(d)), 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. Where a check is payable to the order of “CASH”, the word cash “does
not purport to be the name of any person, thus the instrument is payable to bearer.
Of course if the bank is unsure of the bearer’s identity or financial solvency, it has the right to
demand identification or assurance against possible complications. The bank may require for its
protection that the indorsement of the drawer or of some other person known to it be obtained.
But if the bank is satisfied of the identity of the bearer, it can pay the instrument without further
question and it would incur no liability to the drawer in thus acting.
A check payable to bearer is authority for payment to holder. If the bank has no reasonable
cause to suspect any irregularity, it will be protected in paying a bearer check “no matter what
facts unknown to it may have occurred prior to the presentment. It will not be negligent in failing
to require identification.
8. Development Bank of Rizal v. Sima Wei, GR 85419, March 9, 1993, Campos, Jr., J.
(Complete but undelivered, Section 16)
FACTS:
In consideration for a loan extended by Development Bank of Rizal (DBR) to Sima Wei, Wei
executed and delivered to DBR a promissory note, engaging to pay DBR or order P1.820M on
or before June 24, 1983 with interest at 32% per annum. Wei made partial payments on the note,
leaving a balance of P1,032,450.02. Wei issued two crossed checks payable to DBR drawn
against China Banking Corporation for a total of P1,050,000. The checks were allegedly issued
in full settlement of the drawer’s account evidenced by the promissory note. The two checks
were not delivered to DBR or to any of its authorized representatives. For reasons not shown,
these checks came into the possession of respondent Lee Kian Huat, who deposited the checks
without DBR’s indorsement (forged or otherwise) to the account of respondent Asian Industrial
Plastic Corporation at Balintawak branch of Producers Bank. Cheng Uy, branch manager,
relying on the assurance of respondent Samson Tung, president of Plastic Corporation, that the
transaction was legal and regular, instructed the cashier of Producers Bank to accept the checks
for deposit and to credit them to Plastic’s account inspite of the fact that the checks were
crossed and payable to DBR and had no indorsement. Hence, DBR filed a complaint for sum of
money against respondents Sima Wei et al.
ISSUE:
Whether DBR has a cause of action against the defendants.
HELD:
The elements of a cause of action are 1) legal right of the plaintiff, 2) correlative obligation of
defendant, and 3) an act or omission of defendant in violation of said legal right.
The normal parties to a check are the drawer, payee, and drawee bank. Courts have long
recognized the business custom of using printed checks where blanks are provided for the date
of issuance, name of payee, amount payable, and the drawer’s signature. All the drawer has to do
when he wishes to issue a check is to fill up the blanks and sign it. But the mere fact that he has
done these does not give rise to any liability on his part until and unless the check is
DELIVERED to the payee or his representative. 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. A negotiable
instrument must be delievered to the payee in order to evidence its existence as a binding
contract. S16 of NIL provides:
Every contract on a negotiable instrument is incomplete and revocable until delivery of
the instrument for the purpose of giving effect thereto xxx.
Thus, the payee of a negotiable instrument acquires no interest thereto until its delivery to
him. Delivery of an instrument means transfer of possession, actual or constructive, from one
person to another. Without the initial delivery of the instrument from the drawer to payee, there
can be no liability on the instrument. Moreover, such delivery must be intended to give effect to
the instrument.
The allegations of DBR in the original complaint show that the 2 China Bank checks were not
delivered to the payee DBR. Without delivery, DBR did not acquire any right or interest
therein and cannot therefore assert any cause of action founded on
said checks . (*must
assert the original obligation on promissory note, not the checks)
Nonetheless, Sima Wei is not freed from liability from DBR under the loan evidenced by the
promissory note. Unless Sima Wei proves that she has been relieved from liability on the
promissory note by some other cause, DBR has a right of action against her for the balance due
thereon. But as to the other respondents, DBR has no privity with them.
Aruego claims that he signed only as accommodation party. He was declared in default for filing
his answer a day late. The trial court sentenced Aruego to pay PBC P35,444.35 representing the
total amount of his obligation under the 22 causes of action alleged and P10k as attorney’s fees.
Aruego appealed the judgment denying his motion to set aside the order of default and the order
denying his motion to set aside judgment by default.
ISSUE:
Whether Aruego is primarily liable on the drafts he accepted.
HELD: YES.
To set aside the order of default, defendant must show not only that his failure to answer was due
to fraud, accident, mistake, or excusable negligence, but also that he has a meritorious defense.
Aruego received the order setting aside the initial dismissal of the complaint on March 11, 1960,
5pm, the last day for filing. Aruego filed his answer on March 12. The failure is thus excusable.
It was impossible for him to file his answer on March 11 because the courts held office only up
to 5pm, and he immediately filed his answer the next day. But while the excusable negligence
was proved, he failed to show that he has a meritorious defense.
Aruego’s defenses are: 1)he signed the bills of exchange in a representative capacity as
president of the PH Education Foundation Company, publisher of World Current Events journal;
2) he signed the bills of exchance in the 22 transactions not as principal obligor, but as
accommodation or additional party obligor, to add to the security of PBC.
The first defense is that Aruego signed the supposed bills of exchange as an agent of PH
Education Foundation Company where he is president. S20 of NIL provides:
"Where the instrument contains or a person adds to his signature words indicating that he
signs for or on behalf of a principal or in a representative capacity, he is not liable on the
instrument if he was duly authorized; but the mere addition of words describing him as an
agent or as filing a representative character, without disclosing his principal, does not
exempt him from personal liability."
But nowhere has he disclosed in the drafts accepted by Aruego that he was signing as
representative of the PH Education Foundation Company. He merely signed as “JOSE
ARUEGO (Acceptor) (SGD) JOSE ARUEGO. For FAILURE TO DISCLOSE HIS
PRINCIPAL, Aruego is personally liable for the drafts he accepted.
The contention that he signed only as accommodation party and should thus be made liable only
after a showing that the drawer is incapable of paying is without merit. An accommodation party
is one who has signed the instrument as maker, drawer, indorser, without receiving value
therefor, and for the purpose of lending his name to some other person. Such person is liable
on the instrument to a holder for value notwithstanding the holder knowing at the time of taking
the instrument that he is only an accommodation party. In lending his name to the accommodated
party, the accommodation party is in effect a surety for the latter. He lends his name to enable
the accommodated party to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other parties because he wants to
accommodate another. Here, Aruego signed as a drawee/acceptor. Under NIL, a drawee is
primarily liable.
10. Adalia Francisco v. CA, GR 116320, November 29, 1999, GonzagaReyes, J. (Liability
of Persons Signing as Agent, Section 20)
FACTS:
The controversy originates from a Land Development and Construction Contract entered into
by A Francisco Realty and Development Corporation (AFRDC), of which petitioner Francisco is
the president, and private respondent Herby Commercial and Construction Corporation (HCCC),
pursuant to a housing project of AFRDC financed by GSIS. HCCC agreed to construct 35
housing units and develop 35 hectares of land. The payment of HCCC was on a turnkey basis,
that is, HCCC was to be paid based on the completed houses and developed lands delivered to
and accepted by AFRDC and GSIS. To facilitate payment, AFRDC executed a deed of
assignment in favor of HCCC to enable the latter to collect payments directly from GSIS.
GSIS and AFRDC also put up an executive committee account with the Insular Bank of P4M
from which checks would be issued and cosigned by Francisco and GSIS VP Diaz.
Jaime Ong, HCCC president, discovered that Diaz, GSIS VP, and Francisco had executed and
signed 7 checks drawn against Insular Bank and payable to HCCC for completed and delivered
work under the contract. Ong claims that these checks were never delivered to HCCC. Ong
learned that GSIS gave Francisco custody of the checks since she promised to deliver them to
HCCC. Instead, Francisco forged the signature of Ong without his knowledge at the dorsal
portion of the checks to make it appear that HCCC had indorsed the checks. Francisco then
indorsed the checks a second time and deposited them in her Insular Bank savings account.
Insular bank credited Francisco’s account with the checks’ amounts and Francisco withdrew the
amount credited.
This case was brought by private respondents HCCC and Ong against Francisco and Insular
Bank for recovery of P370k representing the total value of the 7 checks, for damages, etc. The
trial court ruled in favor of HCCC. Based from NBI findings, the trial court held that Francisco
indeed forged Ong’s signature. CA and SC dismissed the appeal. HCCC and Insular Bank
entered into a compromise agreement, approved by the trial court, where HCCC acknowledged
receipt of P370k in full satisfaction of its claims against Insular Bank without prejudice to
Insular Bank’s right to pursue its claim against Francisco.
CA affirmed the trial court’s ruling, hence this petition for review on certiorari.
ISSUE:
Whether Francisco is liable for forging Ong’s signature.
HELD: YES.
We concur with the finding that Francisco forged Ong’s signature to make it appear as if Ong
indorsed the checks. This was satisfactorily established in the trial court upon the findings of the
NBI handwriting expert. Francisco claims that she was, in any event, authorized to sign Ong’s
name on the checks by virtue of the certification executed by Ong in her favor giving her the
authority to collect all the receivables of HCCC from GSIS including the checks.
But NIL provides that where any person is under obligation to indorse in a representative
capacity, he may indorse in such terms as to negative personal liability. An agent, when so
signing, should indicate that he is merely signing in behalf of the principal and must
DISCLOSE the name of his principal. Otherwise, he shall be held personally liable. Even
assuming that Francisco was authorized by HCCC to sign Ong’s name, still Francisco did not
indorse the instrument in accordance with law. Instead of signing Ong’s name, Francisco should
have signed her own name and expressly indicated that she was signing as an agent of
HCCC. Thus, the certification cannot be used by Francisco to validate her forgery.
Every person who, contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same. Due to Francisco’s forgery which enabled her to deposit the
checks in her account, Francisco deprived HCCC of the money due it from GSIS pursuant to the
Land Development and Construction Contract. Thus, the award of compensatory damages of
P370k was affirmed with interest of 6% from date of filing and 12% from date the judgment in
this case becomes final.
10. Jai Alai Corporation of the PH v. BPI, GR L29432, August 06, 1975, Castro, J.
(Forgery)
FACTS:
From April 2 to May 18, 1959, 10 checks worth P8,030 were deposited by Jai Alai in its current
account with BPI acquired from Antonio Ramirez, sales agent of InterIsland Gas and regular
bettor. These were temporarily credited to Jai Alai’s account. After Ramirez had resigned and
after the checks were submitted to interbank clearing on July 1959, InterIsland discovered that
the rubber stamp on the checks reading “InterIsland Gas Service, Inc.” were forgeries. It advised
Jai Alao, BPI, the drawers and draweebanks of the checks. Thus, BPI debited Jai Alai’s account
and forwarded to it the checks, which Jai Alai refused to accept.
On October 08, 1959, Jai Alai drew against its current account with BPI a check for P135k
payable to the order of Mariano Cia in payment of certain shares of stock. This was dishonored
by BPI as Jai Alai’s account only had P128k. Jai Alai filed a complaint against BPI in CFI. CFI
and CA dismissed. Hence this petition.
ISSUE:
Whether BPI had the right to debit Jai Alai’s account after more than 3 months from when the
checks were credited.
HELD: YES.
BPI acted within legal bounds when it debited Jai Alai’s account. When Jai Alai deposited the
checks with BPI, the nature of relationship created at that stage was one of AGENCY BPI was
to collect from the drawees of the checks. No creditordebtor relationship was created. S23 of
NIL states:
"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."
Since a forged signature in a NI is wholly inoperative and no right to discharge it or enforce its
payment can be acquired thru or under the forged signature except against a party who cannot
invoke forgery, it stands to reason that, upon the facts here, BPI, as collecting bank which
indorsed the checks to the draweebanks for clearing, should be liable to the latter (drawees)
for reimbursement for the indorsements on the checks had been forged prior to their
delivery to Jai Alai. The payment by draweebanks to BPI was thus ineffective. Thus, the
relationship of creditordebtor between Jai Alai and BPI had not been validly effected, the
checks not having been properly converted into cash.
It is the obligation of the COLLECTING bank to reimburse the DRAWEEbank the value
of the checks found to contain the forged indorsement of the payee. 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.” It was its DUTY to know that the payee’s endorsement
was genuine before cashing the check. Jai Alai must, in turn, shoulder the loss of the
amounts which BPI as collecting agent had to reimburse to the drawees.
That more than 3 months elapsed since the proceeds of the checks were collected by BPI is
immaterial. It acted promptly after being informed that the indorsements were forged. Having
received the checks merely for collection and deposit, BPI cannot be expected to know the
genuineness of all prior indorsements on the checks. Having itself indorsed them to BPI, Jai
Alai is deemed to have given the warranty in S66 of NIL that every single one of the checks is
“genuine and in all respects what it purports to be.”
Jai Alai was also grossly recreant in accepting the checks from Ramirez. The payee was a
corporation, InterIsland. Yet, Jai Alai cashed these to a mere individual who was a habitue
without making inquiry as to his authority. Any person taking checks payable to a corporation
which can act only by agents does so at his peril.
Also, 3 checks are crossed checks, which may only be deposited but not encashed. Jai Alai
negligently accepted them for cash.
BPI, which relied upon Jai Alai’s warranty, should not be held liable for the resulting loss.
11. Republic Bank v. Mauricia Ebrada, GR L40796, July 31, 1975, Martin, J. (Forgery)
FACTS:
On February 27, 1963, Ebrada encashed a check for P1,246 at RB’s main office in Escolta. It
was issued by Bureau of Treasury. RB was later advised by said bureau that the indorsement by
payee “Martin Lorenzo” was a forgery since he had died as of July 14, 1952. BoT then
requested RB to refund the P1,246. To recover what it refunded, RB demanded from Ebrada the
amount, but Ebrada refused. RB sued Ebrada in City Court.
BoT had issued a check payable to Martin Lorenzo on January 15, 1963. At its back, it has the
signatures of Martin Lorenzo, Ramon Lorenzo, Delia Dominguez, and Mauricia Ebrada. The
check was delivered to Ebrada by Adelaida Dominguez for encashment. Ebrada received the
cash proceeds of P1,246 which she turned over to Adelaida who, in turn, handed the amount to
Justina Tinio.
Ebrada claims that she was a HDC or at least acquired her rights from a HDC. It also claims that
RB is negligent. Ebrada filed a third party complaint against Adelaida Dominguez who filed a
fourt party complaint against Justina Tinio. City court ruled for RB. CFI ordered Ebrada to pay
RB the P1.2k, reserving Ebrada’s right to sue Adelaida. Hence this appeal.
ISSUE:
Whether RB may recover from Ebrada.
HELD: YES.
Ebrada was the last indorser. As such, she was supposed to have warranted that she has good
title to said check, for under S65 of NIL xxx. But it turned out that Martin Lorenzo’s signature
was a forgery as he was already dead. S23 of NIL states xxx.
From S23, where the signature on a NI is forged, the negotiation is without effect. Does this
mean that the existence of one forged signature will render void all other negotiations of the
check of other parties whose signature are genuine? No. It is only the negotiation predicated on
the forged indorsement that is inoperative. Thus, the negotiation of the check from Martin
Lorenzo, original payee, to Ramon Lorenzo, second indorser, is of no effect. But the negotiation
from Ramon to Adelaida, third indorser, and from Adelaida to Ebrada who did not know of the
forgery should be considered valid. (*MLRLAE)
What happens if after the drawee bank has paid the check to the holder, it was discovered that
the signature of the payee was forged? Can the drawee recover from the one who encashed the
check? The drawee can recover from the holder the money paid to him on a forged instrument. It
is not its duty to ascertain whether the signatures of the payee or indorsers are genuine or
not. The indorser is supposed to warrant to the drawee that the signatures of the payee and
previous indorsers are genuine. The recovery is allowed because although the drawee was in a
way negligent in faliing to detect the forgery, yet if the encasher of the check had performed his
duty, the forgery would have been detected and the fraud defeated.
Here, Ebrada, upon receiving the check from Adelaida, was dutybound to ascertain whether
the check was genuine before presenting it to RB for payment. Her failure to do so makes her
liable for the loss and RB may recover from her the money she received for the check.
12. Metropolitan Waterworks and Sewerage System (MWSS) v. CA, GR L62943, July 14,
1986, Gutierrez, Jr., J. (Forgery)
FACTS:
PNB is the depository bank of MWSS. MWSS used personalized checks in drawing from its
account in PNB. These checks were printed for MWSS by its printer, Mesina Enterprises. From
March May, 1969, 23 checks were issued by MWSS, all of which were paid, cleared, and
debited by PNB against MWSS. During the same months, another batch of 23 checks bearing the
same numbers as the previous batch of 23 checks were also paid and cleared by PNB against
MWSS.
The second batch of 23 checks were deposited by payees Raul Dizon, Arturo Sison, and Antonio
Mendoza in their accounts with PCIB and PBC. Thru Central Bank clearing, these checks were
presented for payment by PBC and PCIB to PNB, who paid. Subsequent investigation by NBI
shouwed that these payees were all fictitious persons. MWSS sent a letter to PNB requesting
restoration to its account of P3.457M, the amount of the second batch of 23 checks. PNB
refused. MWSS filed this complaint in CFI.
PNB claims that the checks were regular on its face, including the genuineness of the signatures
of MWSS’s authorized signing officers. MWSS was guilty of negligence. PNB filed a thirdparty
complaint against PBC and PCIB. CFI ruled for MWSS. CA reversed and ruled for PNB. Hence
this petition.
ISSUE:
Whether MWSS may recover.
HELD: NO.
MWSS claims that since the signatures of the checks were forgeries, PNB must bear the loss
since a bank is bound to know the signatures of its customers.
But the NBI investigation does not state that the MWSS signatures were forgeries. It said that the
fraud was an “inside job” and that MWSS’s delay in reconciling its bank statements and its lax
control in the printing of its personalized checks facilitated the fraud. The NBI reports did not
touch on the inherent qualities of the signatures which are indispensable in determining the
existence of forgery. There must be conclusive findings that there is a variance in the inherent
characteristics of the signatures and that they were written by 2 or more different persons.
Forgery cannot be presumed. It must be established by clear, positive, and convincing
evidence.
Considering the absence of sufficient security in the printing of the personalized checks coupled
with the very close similarities between the genuine signatures and the alleged forgeries, the 23
checks could have been presented to MWSS’s signatories without their knowing that they were
bogus checks. Even the MWSS officials could not tell the differences between the genuine
checks and the alleged forged checks.
Also, MWSS is barred from setting up the defense of forgery under S23 of NIL because it
was guilty of negligence not only before the checks were negotiated but even after the same had
already been negotiated. When the 23 checks were prepared, negotiated, and encashed, MWSS
was using its own personalized checks instead of the official PNB Commercial blank checks.
In the exercise of this special privilege, however, MWSS failed to provide the needed security
measures. There was gross negligence in printing of its personalized checks.
MWSS failed to give its printer, Mesina Enterprises, specific instructions as to safekeeping and
disposition of excess forms etc. MWSS failed to provide control as to the paper usedi n the
printing of the checks. MWSS failed to retrieve from its printer all spoiled check forms. MWSS
failed to furnish PNB with samples of typewriting, check writing, and print used by its printer in
the printing of its checks etc. MWSS failed to send a representative to the printing office during
the printing of said checks. Also, MWSS failed to reconcile the bank statements with its own
records.
It is accepted banking procedure for the depository bank to furnish its depositors bank statements
thru mail. MWSS requested PNB to discontinue the practice of mailing the bank statements, but
to deliver these instead to one Emiliano Zaporteza. But Zaporteza was unreasonable delayed in
taking prompt deliveries of the bank statements. He thus failed to reconcile the statements with
MWSS’s records. Had Zaporteza not been remiss, the fraudulent encashments should have
been discovered and further frauds prevented. This NEGLIGENCE was the proximate
cause of failure to discover the fraud.
It is the duty of a depositor to carefully examine the bank’s statement and his check stubs and
other records within a reasonable time and to report errors without unreasonable delay. If his
negligence should cause the bank to honor a forged check or prevent it from recovering the
amount it may have already paid on such check, he cannot later complain should the bank refuse
to recredit his account.
MWSS also failed to prove appropriate security measures over its own records, thereby laying
confidential records open to unauthorized persons. Even if the 23 checks are considered
forgeries, considering MWSS’s gross negligence, it is BARRED from setting up the defense
of forgery under S23 of NIL. We cannot fault PNB for not having detected the fraudulent
encashment because the printing of MWSS’s personalized checks was not done under the
supervision and control of the bank. MWSS did not furnish PNB with samples of checks, pens,
and inks or took other precautionary measures with PNB to safeguard its interests. Thus, MWSS
was in a better position to detect and prevent the fraudulent encashment of its checks.
After, Equitable discovered that the endorsements at the back of the checks purporting to be that
of the payees were forged or unauthorized or belonged to persons other than the payees.
Equitable presented the checks to BDO to claim reimbursement. But BDO refused. Equitable
filed a case against it, praying for the P45k with interest and costs.
ISSUE:
Whether Equitable may recover from BDO.
HELD: YES.
The PCHC articles of incorporation extends its operation to “clearing checks and other clearing
items.” Even if the checks here had the words “or bearer” from the face of the check was
cancelled, making the checks non-negotiable, PCHC still has jurisdiction. Its articles of
incorporation makes no distinction as to negotiable or non-negotiable checks.
Also, BDO is estopped from raising the defense of non-negotiability of the checks. It
stamped its guarantee on the back of the checks and presented them for clearing. It was
based on these endorsements by BDO that the proceeds were credited in the clearing account.
BDO by its own acts cannot now deny liability because it ASSUMED the liabilities of an
endorser by stamping its guarantee at the back of the checks. By such deliberate and positive
attitude of BDO, it has for all legal intents and purposes treated the checks as negotiable
instruments and ASSUMED the warranty of endorser when it stamped its guarantee of prior
endorsements. It led PCHC to believe that it was acting as endorser and on the strength of this
guarantee, PCHC cleared the checks and credited BDO’s account.
A commercial bank cannot escape the liability of an endorser of a check and which may turn
out to be a forged endorsement. Whenever any bank treats the signature at the back of the
checks as endorsements and thus logically guarantees the same as such, the bank considered
the checks as negotiable.
As to the forgery, the COLLECTING BANK or LAST ENDORSER generally suffers the
loss because it has the DUTY to ascertain the genuineness of all prior endorsements
considering that the act of presenting the check for payment to the drawee is an assertion
that the party making the presentment has done its duty to ascertain the genuineness of the
endorsements. If the draweebank discovers that the signature of the payee was forged after it
has paid the amount of the check to the holder, it can recover from the collecting bank. When a
check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the
genuineness of the drawer’s signature and his capacity to issue the instrument.
The point that comes uppermost is whether the drawee bank was negligent in failing to discover
the forgery. S66 of NIL provides xxx. The drawer owes no duty of diligence to the collecting
bank except of seasonably discovering the alteration by a comparison of its returned checks and
check stubs or other equivalent record and to inform the drawee thereof. Negligence of the
drawer is not a defense to the collecting bank because there is no privity between them.
Negligence of the drawer cannot make him liable to the collecting bank.
Thus, while the drawer generally owes no duty of diligence to the collecting bank, the law
imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it to
determine their genuineness and regularity (*cuz of S66, general indorsers’ warranty). And
although the checks here are nonnegotiable, the responsibility of BDO as indorser thereof
remains.
14. Natividad Gempesaw v. CA, GR 92244, February 09, 1993, Campos, Jr., J. (Forgery)
FACTS:
Gempesaw operates 4 grocery stores in Caloocan City. He has a checking account with PH Bank
of Communications (PBCOM). To facilitate debt payments to her suppliers, he draws checks
against her checking account with PBC as drawee.
The checks were filled up as to all material particulars by her trusted bookkeeper, Alicia Galang,
employee for more than 8 years. After Alicia prepares them, the completed checks were
submitted to Gempesaw for her signature together with the invoice receipts indicating what is
payable to the suppliers. Gempesaw signed the checks without bothering to verify the
accuracy of the checks against the corresponding invoices because she reposed full trust on
Alicia. The delivery of the checks to the payees were left to Alicia. Gempesaw did not verify as
to whether the checks were actually delivered to their respective payees. Although PBCOM
notified her of all checks paid by the bank, Gempesaw did not verify the correctness of the
returned checks nor check if the payees received the checks in payment.
In a span of 2 years, Gempesaw issued 82 checks in this manner. These were all honored by
PBCOM and debited from Gempesaw’s account with it. Most of these checks were for amounts
in excess of her actual obligations to the various payees. (obligation: P895.33, check:
p11,895.23 etc etc.) Practically, all these checks were crossed checks. PBCOM also gave
Gempesaw a monthly statement of her bank transactions. Only after 2 years did Gempesaw find
out about Alicia’s fraudulent manipulations.
About 30 payees of the checks testified that they did not receive nor even see the checks and that
the indorsements appearing at the back of the checks were not theirs.
Gempesaw demanded PBCOM to credit her account with the value of the 82 checks totaling
P1,208,606. PBC refused. Gempesaw filed a complaint against private respondent PBCOM
(drawee) for recovery of the money value of 82 checks charged against Gempesaw’s account
with PBC on the ground that the payee’s indorsements were forgeries.
ISSUE:
Whether Gempesaw may invoke the defense of forgery.
HELD: NO.
This suit is not by the party whose signature was forged on a check. The payees are not parties
here. Rather, it is the drawer, whose signature is genuine, who filed suit to recover from the
drawee bank who paid the holders of the 82 checks where the indorsements of the payees were
forged. Who committed the forgeries were not established. S23 of NIL provides:
"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."
Under S23, forgery is a real defense. A party whose signature was forged never gave his consent
to the contract giving rise to the instrument. Since his signature does not appear, he cannot be
held liable on the instrument, not even by a HDC. This covers a forged indorsement of the payee
or indorsee. Although rights may exist between parties subsequent to the forged indorsement, not
one of them can acquire rights against parties prior to the forgery. The forged indorsement cuts
off the rights of all subsequent parties as against parties prior to the forgery.
Problems arising from forged indorsements of checks may be broken into two types of cases: 1)
where forgery was made by a person not associated with the drawer (ex. mail robbery) or 2)
where the indorsement was forged by an agent of the drawer. The difference in situation would
determine the effect of the drawer’s negligence as to forged indorsements. If a drawer learns that
a check drawn by him has been paid under a forged indorsement, the drawer is under duty to
promptly report such fact to the drawee bank. For his negligence or failure to discover or to
report the forgery, the drawer loses his right against the drawee who has debited his account
under the forged indorsement.
Here, Gempesaw admits that Alicia filled up and completed the checks later given to her for
signature. Her signing completed the negotiable instrument. Every negotiable instrument is
incomplete and revocable until delivery to the payee for the purpose of giving effect thereto.
Gempesaw completed the checks by signing them as drawer and thereafter authorized
Alicia to deliver to the payees. Instead of delivering them to the payees, Alicia delivered them to
the Chief Accountant of PBCOM’s Buendia Branch, one Ernest Boon. The first indorsements as
payee were forged. The second indorsements were made with the names of Alfredo Romero and
Benito Lam and were deposited in their accounts. The second indorsements were all genuine
signatures of the alleged holders.
As a rule, a drawee bank who paid a check on which an indorsement was forged cannot charge
the drawer’s account for said check. An exception is where the drawer is guilty of such
NEGLIGENCE which causes the bank to honor such a check. If a check is stolen from the
payee, the drawer cannot possibly discover forged indorsement by mere examination of his
cancelled check. this accounts for the rule that although a depositor owes a duty to his drawee
bank to examine his cancelled checks for forgery of his own signature, he has no similar duty as
to forged indorsements. A different situation arises where the indorsement was forged by an
employee or agent of the drawer.
The negligence of a depositor which will prevent recovery of an unauthorized payment is based
on failure of the depositor to act as a prudent businessman would under the circumstances.
Here, Gempesaw relied implicitly upon the honesty of Alicia and did not even verify the
accuracy of the amounts of the checks she signed against the invoices attached. She did not
examine her bank statements. Otherwise, she could have easily discovered the discrepancies. The
subsequent forgeries would not have been accomplished.
Gempesaw thus failed to examine her records with reasonable diligence. Her negligence was
the proximate cause of her loss. And since it was her negligence which caused PBCOM to honor
the forged checks, Gempesaw cannot now complain. Under S23, she is now PRECLUDED
from using the forgery to prevent the bank’s debiting of her account.
Great Eastern Life Isurance Co. v. HK & Shanghai Bank is not applicable since in that case, the
check was fraudulently taken and the signature of the payee was forged not by an agent or
employee of the drawer. The drawer was not negligent therein.
Issuing a crossed check imposes no legal obligation on the drawee not to honor the check. It is
more of a warning to the holder that the check cannot be presented to the drawee for payment in
cash, only deposit.
Under S196 of NIL, any case not provided in it will be governed by existing laws. Under Art.
1170, Gempesaw may hold PBCOM liable for damages. There is a contractual relation between
Gempesaw as depositor-obligee and PBCOM as obligor. The drawee bank is bound by its
internal banking rules which form part of any contract it neters into with depositors. When it
violated its internal rules that second indorsements are not to be accepted without approval
of its branch managers, it contravened the tenor of its obligation. There was also negligence in
Art. 1173 when PBCOM did not discover the irregularity of acceptance of checks with
second indorsement for deposit even without approval of the branch manager despite periodic
inspection by its team of auditors.
PBCOM was held to share the loss with Gempesaw on a 50-50 ratio in accordance with Art.
1172.
15. Associated Bank v. CA, GR 107382, January 31, 1996, Romero, J. (Forgery)
FACTS:
Province of Tarlac has a current account with PNB. Checks issued by it are signed by the
provincial treasurer and countersigned by the provincial auditor or secretary of the Sangguniang
Bayan. A portion of its funds is allocated to the Concepcion Emergency Hospital. The allotment
checks for said hospital are drawn to the order of “Concepcion Emergency Hospital, Concepcion,
Tarlac” or “The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac.”
The books of account of the provincial treasurer were post-audited. It was discovered that the
hospital did not receive several allotment checks drawn by the province. It was learned that
30 checks worth P203,300 were encashed by one Fausto Pangilinan, with Associated Bank as
collecting Bank.
(*Collecting Bank: Associated Bank; Drawee Bank: PNB; Payee: Concepcion Emergency
Hospital; Drawer: Province of Tarlac)
It turned out that Fausto, cashier of the payee hospital, collected the checks form the provincial
treasurer. He claimed to be helping the hospital follow up the release of the checks and had ORs.
Fausto deposited the check in his account and was able to withdraw the money when the check
was cleared and paid by PNB. Fausto forged the signature of Dr. Canlas, who was chief of the
hospital for the 30 checks. All checks bore the stamp of Associated Bank: “All prior
endorsements guaranteed ASSOCIATED BANK.”
Provincial treasurer sought restoration of the amounts debited from the account of the province.
PNB in turn demanded reimbursement from Associated Bank. Both banks resisted payment, so
Tarlac sued PNB, who impleaded Associated Bank as thirdparty defendant. Associated Bank
filed a fourthparty complaint against Dr. Canlas and Fausto.
RTC ordered PNB to pay Tarlac the P203k, Associated Bank to reimburse PNB, and dismissed
the case against Dr. Canlas for lack of cause of action and against Fausto for lack of jurisdiction.
CA affirmed. Hence this petition.
ISSUE:
Whether Tarlac may recover the amount of the check.
HELD: Only 50% from PNB.
PNB claims that Tarlac was negligent when it delivered the checks to Fausto and that Associated
Bank should be ordered to pay Tarlac directly to prevent circuity. Associated Bank argues that
PNB is the one ultimately bearing the loss.
The checks bear the genuine signatures of the drawer Tarlac. The infirmity lies in the payee’s
indorsements which are forgeries. The checks were order instruments.
Checks having forged indorsements (payee) should be differentiated from checks with the
forged signature of the drawer. S23 of NIL provides xxx. A forged signature, whether of the
drawer or payee, is wholly inoperative. S23 does not avoid the instrument, but only the forged
signature. Thus, a forged indorsement does not operate as the payee’s indorsement. The
exception is where a party against whom it is sought to enforce a right is precluded from setting
up the forgery. Parties who 1) warrant the genuineness of the signature and those 2) who are
estopped from setting up the defense of forgery are precluded from using this defense.
In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the
instrument. Thus, when the indorsement is a forgery, only the person whose signature is
forged can raise the defense of forgery against a HDC.
For order instruments, the signature of its rightful holder (payee hospital) is essential to transfer
title. When the holder’s indorsement is forged, all prior parties prior to the forgery may raise the
real defense of forgery against all parties subsequent thereto. An indorser of an order instrument
warrants that the instrument is genuine and in all respects what it purports to be; that he has a
good title to it; that all prior parties had capacity to contract; and that the instrument is at the time
of his indorsement valid and subsisting.” He cannot interpose the defense that signatures prior to
him are forged.
A collecting bank, where a check is deposited and which indorses the check upon
presentment with the drawee bank, is SUCH AN INDORSER. So even if the indorsement on
the check deposited by the bank’s client is forged, the collecting bank is bound by its
warranties as indorser and cannot set up the defense of forgery against the drawee bank.
The drawee bank is under strict liability to pay the check to the order of the payee. The drawer’s
instructions are reflected on the face of the check. Payment under a forged indorsement is not to
the drawer’s order. Since the drawee bank did not pay a holder or other person entitled to receive
payment, it has no right to reimbursement from the drawer. But if the drawee bank can prove
negligence that substantially contributed to the making of the forged signature, the drawer is
precluded from asserting the forgery. If the drawee bank is also negligent, the loss from the
forgery can be apportioned between the negligent drawer and bank.
Where the drawer’s signature is forged, he can recover from the drawee bank. No drawee bank
has a right to pay a forged check. The liability chain ends with the drawee bank whose
responsibility it is to know the drawer’s signature since the latter is its customer.
For cases with forged indorsements, like here, the chain of liability does not end with the
drawee bank. The drawee bank may not debit the account of the drawer but may generally pass
liability back through the collection chain to the party who took from the forger and to the
forger himself if available. Theoretically, the collecting bank can demand reimbursement from
the person who indorsed the check to it and so on, the loss falls on the party who took the check
from the forger or on the forger himself.
Here, the checks were indorsed by Associated Bank (collecting bank) to PNB (drawee).
Associated is liable to PNB since the forgery is that of the payee’s or holder’s indorsement
without prejudice to the collecting bank to go against the forger. Since a forged indorsement is
inoperative, the collecting bank had no right to be paid by the drawee bank. Collecting bank must
return the money paid by the drawee because it was paid wrongfully.
More importantly, due to the statutory warranty of a general indorser in S66 of NIL, a
collecting bank which indorses a check with a forged indorsement and presents it to the drawee
bank guarantees all prior indorsements including the forged indorsement. This operates
without regard to fault of the collecting bank (even if it was not negligent). The collecting bank
or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of
all prior endorsements. The drawee bank is not similarly situated as it makes no warranty as to
genuineness of any indorsement. The drawee bank’s duty is but to verify the genuineness of the
drawer’s signature and not of the indorsement because the drawer is its client. The
collecting bank is the entity with the duty to verify the genuineness of the payee’s indorsement.
The collecting bank is liable also because it is privy to the depositor who negotiated the check.
The bank knows him because he is a client.
However, a drawee bank has the duty to promptly inform the presentor of the forgery upon
discovery. If it delays, thereby depriving the presentor of the right to recover from the forger, it
is deemed negligent and can no longer recover from the presentor.
Here, PNB cannot debit the account of Tarlac because it paid checks with forged indorsements.
But if Tarlac was negligent to the point of substantially contributing to the loss, then PNB can
charge its account. If both of them are negligent, the loss should be apportioned. The loss by
PNB can be passed on to Associated. Associated can, in turn, hold the forger Fausto liable. If
PNB delayed in informing Associated of the forgery, it forfeits its right to reimbursement and
will be made to bear the loss.
From the records, Tarlac was equally negligent and should thus share the burden of loss. It
permitted Fausto to collect checks when Fausto, having already retired, was no longer
connected with the hospital. Except the first check, all the checks were issued after Fausto’s
retirement. Some of the aid allotment checks were released to Fausto and the others to Elizabeth,
the new cashier. The fact that there were 2 persons collecting the checks for the hospital is an
obvious sign of irregularity which should have alerted the treasurer’s office of the fraud.
PNB also breached its duty to pay only according to the terms of the check and should thus bear
part of the loss. PNB can recover from Associated.
Associated claims that the guarantee stamped on the checks (all prior xxx) is merely a
requirement forced upon it by clearing house rules. But it remains liable. A bank is not required
to accept all the checks negotiated to it. When a check is deposited with the collecting bank, it
takes a risk on its depositor.
The rule then in force in 1981 required the checks be returned within 24 hours after discovery
of the forgery to give the collecting bank adequate opportunity to proceed against the forger. But
even if PNB did not return the checks within 24 hours to Associated, PNB did not commit
negligent delay. Under the circumstances, PNB gave prompt notice to Associated and the
latter was not prejudiced in going after Fausto. After Tarlac informed PNB of the forgeries,
PNB necessarily had to conduct its own investigation. Thereafter, it requested on March 31,
1981 the provincial treasurer to return the checks for verification. The check was returned only
on April 22. Two days later, Associated Bank received the checks from PNB. Associated was
also furnished a copy of Tarlac’s letter of demand to PNB on March 20, giving it notice of the
forgeries. At this time, Fausto’s account had only P24.63. Associated could not have recovered
the amounts paid on the checks. Thus, Associated was not prejudiced.
Tarlac and PNB was ruled to share the loss 5050. Associated is liable for 50% of P203,300 to
PNB.
16. Metropolitan Bank and Trust Company v. First National City Bank, GR L55079,
November 19, 1982, MelencioHerrera, J. (Forgery)
FACTS:
On August 25, 1964, Check 7166 for P50k payable to CASH drawn by Joaquin Cunanan &
Company on First National City Bank (FNCB) was deposited with Metrobank by one Salvador
Sales. Earlier that day, Sales had opened a current account with Metrobank, depositing P500
cash. The check was immediately sent to the Clearing House of CB with these words stamped at
the back:
"Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements
and/or Lack of endorsements Guaranteed."
The check was cleared. FNCB paid Metrobank P50k and Sales was credited with the same.
On August 26, 1964, Sales made a first withdrawal of P480. On Aug. 28, he withdrew P32,100.
On Aug. 31, he withdrew the balance of P17,920 and closed his account with Metrobank. On
September 03, 1964 (9 days later), FNCB returned cancelled check 7166 to Joaquin and the
monthly statement of its account with FNCB. That same day, Joaquin notified FNCB that the
check had been altered. The P50 amount was raised to P50k and over the name of the payee,
Manila Polo Club, was superimposed the word CASH.
, FNCB notified Metrobank of the alteration by telephone on the same day. FNCB asked
Metrobank to reimburse P50k. Metrobank refused. FNCB sued it in CFI for the P50k. CFI
ordered Metrobank to reimburse the P50k. CA affirmed. Hence this petition.
ISSUE:
Which bank is liable for the payment of the altered check? Drawee FNCB or Collecting Bank
Metrobank? (*Drawer: Joaquin; Payee: Manila Polo Club, superimposed with CASH)
HELD: FNCB.
Under the then effective CB Circular, the drawee bank receiving the check for clearing from CB
Clearing House must return the check to the collecting bank within the 24hour period if the
check is defective for any reason. Metrobank invokes this as defense. FNCB relies on the
guarantee of all previous indorsements by Metrobank, allegedly misleading FNCB into believing
that the check was regular and the payee’s indorsements genuine.
The check was not returned to Metrobank within the 24hour clearing house period, but was
cleared by FNCB. Failure of FNCB therefore to call the attention of Metrobank to the
alteration of the check until after 9 days negates whatever right it might have had against
Metrobank in light of the CB Circular. FNCB’s remedy is against the party responsible for
changing the name of the payee and the amount of the check.
As to the stamp of Metrobank, in HK & Shanghai Banking Corporation v. People’s Bank, it was
held that :
The indorsement, itself, is very clear when it begins with words 'For clearance, clearing
office . . . In other words, such an indorsement must be read together with the 24-hour
regulation on clearing House Operations of the Central Bank. Once that 24-hour
period is over, the liability on such an indorsement has ceased.
Consistent with this ruling, Metrobank cannot be held liable.
Also, FNCB did not deny that Metrobank, before it allowed withdrawal of the P17,920 by Sales,
withheld payment and first verified thru FNCB’s department officer on the genuineness of the
check deposit because of the fast movement of the account. Only upon being assured that the
same is not unusual did Metrobank allow withdrawal of the balance.
17. Republic Bank v. CA, GR L42725, April 22, 1991, GriñoAquino, J. (Forgery)
FACTS:
San Miguel Corporation (SMC) drew a dividend check for P240 on its account in the respondent
First National City Bank (FNCB) in favor of Roberto Delgado, a stockholder. After the check
was delivered to Delgado, the amount on its face was fraudulently and without authority of
drawer SMC altered by increasing it from P240 to P9,240. It was indorsed and deposited by
Delgado in his account with Republic Bank(RB).
Drawer: SMC; Payee: Delgado; Collecting Bank: Republic Bank; Drawee Bank: FNCB
RB accepted the check for deposit without ascertaining its genuineness and regularity. RB
indorsed the check to FNCB by stamping on the back of the check “all prior and/or lack of
indorsement guaranteed” and presented it to FNCB for payment thru clearing house. Believing
the check to be genuine, FNCB paid P9,240 to RB thru CB clearing house.
SMC notified FNCB of the material alteration. FNCB lost no time in recrediting P9,240 to SMC.
FNCB informed RB of the alteration. By then, Delgado had already withdrawn his account from
RB. FNCB demanded RB to refund the P9,240. RB refused, claiming delay in giving notice of
alteration and that it was not guilty of negligence.
Trial court ordered RB to pay the P9,240. CA affirmed. Hence this petition.
ISSUE:
Whether Republic, as collecting bank, is protected by the 24hour clearing house rule in CB
Circular 9 as amended from liability to refund the amount paid by FNCB as drawee of the SMC
dividend check.
HELD: YES.
The 24hour clearing house rule in S4(c) of CB Circular 9 provides:
"Items which should be returned for any reason whatsoever shall be returned directly to
the bank, institution or entity from which the item was received. For this purpose, the
Receipt for Returned Checks (Cash Form No. 9) should be used. The original and
duplicate copies of said Receipt shall be given to the Bank, institution or entity which
returned the items and the triplicate copy should be retained by the bank, institution or
entity whose demand is being returned. At the following clearing, the original of the
Receipt for Returned Checks shall be presented through the Clearing Office as a demand
against the bank, institution or entity whose item has been returned. Nothing in this
section shall prevent the returned items from being settled by direct reimbursement to the
bank, institution or entity returning the items. All items cleared at 11:00 o'clock A.M.
shall be returned not later than 2:00 o'clock P.M. on the same day and all items cleared at
3:00 o'clock P.M. shall be returned not later than 8:30 A.M. of the following business day
except for items cleared on Saturday which may be returned not later than 8:30 A.M. of
the following day."
This rule is applicable to commercial banks.
When an indorsement is forged, the collecting bank or last indorser, as a general rule, bears the
loss. But the unqualified indorsement of the collecting bank should be read together with the
24hour regulation on clearing house operation. Thus, when the drawee bank fails to return
a forged or altered check to the collecting bank within the 24hour clearing period, the
collecting bank is ABSOLVED from liability.
Every bank that issues checks for the use of its customers should know whether the drawer’s
signature thereon is genuine, whether there are sufficient funds in the drawer’s account to cover
checks issued, and it should be able to detect alterations, erasures, superimpositions, or
intercalations thereon, for these instruments are prepared, printed, and issued by itself, it has
control of the drawer’s account, and it is supposed to be familiar with the drawer’s signature. It
should possess appropriate detecting devices for uncovering forgeries and alterations. Unless
the alteration is attributable to the negligence of the drawer, like when he leaves spaces on
the check allowing fraudulent insertion, the remedy of the drawee bank that negligently clears a
forged check is against the party responsible for the forgery. It may not charge the drawer’s
account if the latter was free from blame nor recover it from the collecting bank if the
latter made payment after proper clearance from the drawee. (*if may 24hour)
Thus, since FNCB failed to detect and warn RB about the fraud within the 24hour clearing
house rule, FNCB bears the loss.
18. Philippine Commercial International Bank v. CA, GR 121413, January 29, 2001,
Quisumbing, J. (Forgery)
FACTS:
Case 1
Ford issued Citibank Check, crossed check, of P4.7M to CIR as payment of its percentage or
manufacturer’s sales taxes. This was deposited with PCIB and cleared. Upon presentment to
Citibank, the proceeds were paid to PCIB as collecting bank. But the proceeds of the check were
never received by the payee CIR. Ford was thus forced to make a second payment to CIR for its
taxes for the third quarter of 1977.
Drawer: Ford; Payee: CIR; Drawee: Citibank; Collecting Bank: PCIB
Instead, the checks were encashed by unauthorized persons. The check was recalled by
Godofredo Rivera, general ledger accountant of Ford. He purportedly needed to hold back the
check because there was an error in the computation of the tax due to the BIR. With Rivera’s
instruction, PCIB replaced the check with 2 of its own manager’s checks (MC). Alleged
members of a syndicate later deposited the two MCs with the Pacific Banking Corporation.
Rivera is now a fugitive from justice.
Citibank claims that it merely relied on the clearing stamp of collecting bank PCIB that “all prior
indorsements and/or lack of indorsements guaranteed” and the proximate cause of PCIB’s injury
is the gross negligence of PCIB in indorsing Ford’s check.
RTC ordered Citi and PCIB jointly and severally to pay the P4.7M to Ford. CA affirmed. Hence
this petition.
Case 2
The same syndicate also embezzled Ford’s checks for tax payments for second quarter of 1978
and first quarter of 1979. Both checks were crossed checks. CIR never received the payment.
The BIR Revenue Tax Receipts issued for the checks were found by NBI as spurious. So Ford
paid anew and sued PCIB and Citi for recovery.
RTC held Citi liable and absolved PCIB. CA affirmed. Hence this petition.
The modus of the syndicate is as follows:
Rivera, general ledger accountant of Ford, prepared Ford’s checks for payment to BIR. Instead
of delivering it to the payee, he passed it to a coconspirator named Castro, promanager of
PCIB. Castro deposited a worthless Bank of America Check in exactly the same amount as the
Ford checks and while the checks were coursed thru PCIB’s main office enroute to CB for
clearing, replaced this worthless check with Ford’s checks. Thus, Citi cleared the checks, and the
fictitious deposit account of one “Reynaldo Reyes” was credited at PCIB.
ISSUE:
Whether PCIB and Citi are liable for the loss of the checks.
HELD: YES.
The checks were drawn against the drawee bank, but the title of the person negotiating it was
defective because the instrument was obtained by fraud and unlawful means. The proceeds of the
checks were not remitted to the payee. S55 of NIL applies.
Citi claims that Ford allowed its own employee, Rivera, to negotiate the checks to co
conspirators instead of delivering them to the authorized collecting bank of the payee, CIR. Ford
was remiss in the supervision and control of its employees. PCIB also blames Ford of negligence
when it authorized Rivera to divert the proceeds of the Citi check.
Although the employees of Ford initiated the transactions attributable to an organized syndicate,
their actions were not the proximate cause of encashing the checks payable to CIR. Ford’s
negligence, if any, is not the proximate cause of the injury to the parties. Ford’s board did not
confirm Rivera’s request to recall the Citi check. Rivera’s instruction to replace the check with
PCIB’s manager’s check was not in the ordinary course of business. The other two crossed
checks were payable to CIR and were turned around by Ford’s employees who were acting on
their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a drawerpayor’s
confidential employee does not entitle the bank to shift the loss to it.
As to PCIB’s negligence:
The check was deposited at PCIB Ermita branch and sent to clearing with the indorsement at the
back “all prior indorsements xxx.” It was presented to Citi for payment. PCIB, thereafter, instead
of remitting the proceeds to CIR, prepared two of its manager’s checks and enabled the
syndicate to encash it. PCIB failed to verify the authority of Rivera to negotiate the checks.
This showed lack of care required under the circumstances.
PCIB was also authorized as agent of BIR to collect tax payments for BIR. Thus, PCIB is duty
bound to consult with its principal regarding the unwarranted instructions given by the payor.
The relationship between the payee or holder and the bank to which it is sent for collection is,
without contrary agreement, that of principal and agent. The bank receiving the paper for
collection is the payee’s/holder’s agent.
Also, the crossing of the check with the phrase between the two parallel lines “Payee’s Account
Only” is a warning that the check should be deposited only in the account of CIR. Thus, it is
the duty of the collecting bank PCIB to ascertain that the check be deposited in payee’s account
only. It is collecting bank PCIB which is bound to scrutinize the check and to know its
depositors before it could make the clearing indorsement “all prior indorsements xxx.”
Thus, as PCIB’s negligence is the proximate cause of the loss of the check in Case1, it is liable
for P4.7M.
As to the 2 checks in Case 2:
As a general rule, a banking corporation is liable for the wrongful acts of its officers or agents
within the course and scope of their employment. The promanager of San Andres branch of
PCIB, Castro, received the 2 checks and passed it to a coconspirator, an assistant manager of
PCIB Meralco Branch, who helped Castro open a checking account of a fictitious person named
Reynaldo Reyes. The syndicate tampered with the checks and succeeded in replacing the
worthless Bank of America Check and its eventual encashment.
A bank holding out its officers and agents as worthy of confidence will not be permitted to profit
by the frauds these officers or agents were enabled to perpetrate in the course of their
employment nor will it be permitted to shirk its responsibility for such frauds. The general rule
is that a bank is liable for the fraudulent acts or representations of an officer or agent acting
within the course and scope of his employment or authority.
But the responsibility for negligence does not lie on PCIB’s shoulders alone. Citi as drawee was
also negligent. Citi must also answer for the damages incurred by Ford for the 2 checks because
of the contractual relationship existing between them. Citi, as drawee, breached its contractual
obligation with Ford. Citi should have scrutinized the 2 checks before paying them to the
collecting bank of BIR. The clearing stamps at the back of the checks do not bear any initials.
Citi failed to notice and verify the absence of the clearing stamps. Had this been examined,
the switching of the worthless checks to the 2 checks would have been discovered in time. Thus,
Citi failed to ensure that the amount of the checks should be paid only to its designated payee.
Thus, invoking the doctrine of comparative negligence, both PCIB and Citi failed in their
respective obligations and were negligent in the selection and supervision of their employees.
They are equally liable to Ford for the 2 checks.
Also, Ford is not completely blameless in its failure to detect the fraud. Failure on the
depositor to examine its passbook, statements of account, and cancelled checks and to give
notice within a reasonable time of any discrepancy which it may in the exercise of due diligence
find, serves to mitigate the banks’ liability by reducing the interest from 12% to 6% per annum.
In quasi delicts, the contributory negligence of the plaintiff shall reduce the damages that he may
recover.
19. Ramon Ilusorio v. CA, GR 139130, November 27, 2002, Quisumbing, J. (Forgery;
*Forgery in this case was not established with certainty)
FACTS:
Ilusorio is a prominent businessman who was the managing director of Multinational Investment
Bancorporation and chairman of several other corporations. He was a depositor in good standing
of respondent Manila Banking Corporation (MBC) with a current checking account therein. As
he was running about 20 corporations and was going out of the country a number of times,
Ilusorio entrusted to his secretary, Katherine Eugenio, his credit cards and checkbook with blank
checks. It was Eugenio who verified and reconciled the statements of the checking account.
From September 05, 1980 and January 23, 1981, Eugenio was able to encash and deposit to her
personal account about 17 checks drawn against Ilusorio’s account in MBC totaling P119k.
Ilusorio did not bother to check his statement of account until a business partner apprised him
that he saw Eugenio use his credit cards. Ilusorio fired Eugenio immediately and filed a criminal
action against her for estafa.
Ilusorio requested MBC to credit back the checks but MBC refused. Hence he filed a complaint.
The trial court dismissed the complaint. CA held that it was Ilusorio’s own negligence that was
the proximate cause of the loss and affirmed the dismissal. Hence this petition.
ISSUE:
Whether Ilusorio was negligent in leaving his blank checks with Eugenio.
HELD: YES.
Ilusorio claims that MBC is liable for its negligence in failing to detect the discrepant checks. He
claims that generally, a bank that obtains a check upon a forged indorsement of the payee’s
signature and which collects the amount of the check from the drawee is liable for the proceeds
to the payee.
Ilusorio has no cause of action against MBC. Ilusorio must establish the fact of forgery by
submitting his specimen signatures and comparing them with those on the questioned checks.
But he failed to submit additional specimen signatures as requested by NBI from which to draw a
conclusive finding regarding forgery. By his inaction, Ilusorio was precluded from setting up
forgery. He failed to prove forgery.
Ilusorio’s claim that MBC was remiss in the exercise of its duty as drawee lacks factual basis.
MBC’s employees did not have a hint as to Eugenio’s modus because she was a regular customer
of the bank, having been designated by Ilusorio himself to transact in his behalf. They exercised
due diligence.
Ilusorio’s failure to examine his bank statements is the proximate cause of his own damage.
MBC was not shown to be remiss in its duty of sending monthly bank statements to Ilusorio so
that any discrepancy in the entries therein could be brought to the bank’s attention at the earliest
opportunity. Had Ilusorio checked them, he could have been alerted to any anomaly committed
against him. He had sufficient opportunity to prevent misappropriation.
Ilusorio claims that under S23 of NIL, a forged check is inoperative and that MBC had no
authority to pay the forged checks. But this rule has an exception: “unless the party against
whom it is sought to enforce such right is precluded from setting up the forgery or want of
authority.” Here, the exception applies. Ilusorio is precluded from setting up the forgery,
assuming there is forgery, due to his own NEGLIGENCE in entrusting to his secretary his
credit cards and checkbook including the verification of his statements of account.
20. Samsung Construction Company PH, Inc. v. Far East Bank and Trust Company and
CA, GR 129015, August 13, 2004, Tinga, J. (Forgery)
FACTS:
Samsung, while based in Laguna, had a current account with FEBTC at the latter’s BelAir
Makati branch. The sole signatory to Samsung’s account was Jong Kyu Lee, its project manager,
while the checks remained in the custody of the company’s accountant Kyu Yong Lee.
One Roberto Gonzaga presented for payment FEBTC check 432100 to its Makati BelAir
branch. The check, payable to cash and drawn against Samsung’s account, was for P999,500.
The bank teller Cleofe, after ascertaining that Samsung had enough funds, compared the
signature on the check with the specimen signature of Jong in the bank’s specimen signature
card. Cleofe was satisfied as to the authenticity of the signature. She then asked Gonzaga to
submit proof of his identity and the latter presented 3 ID cards. Cleofe forwarded the check to
branch senior assistant cashier Velez, as it was bank policy that 2 bank branch officers approve
checks exceeding P100k for payment or encashment. Velez also counterchecked the signature on
the signature card and was also satisfied. Velez then forwarded the check and signature card to
Syfu, another bank officer.
Syfu noticed that the assistant accountant of Samsung, Jose Sempio III, was also in the bank.
Syfu showed Sempio the check. Sempio vouched for the genuineness of Jong’s signature.
Sempio said that the check was for the purchase of equipment for Samsung. Thus, Syfu
authorized the encashment to Gonzaga.
The next day, Kyu examined the balance of the bank account and found the P999,500 encashed.
Since he did not prepare such a check for Jong’s signature, Kyu checked his checkbook and
found that the last blank check was missing. He reported this to Jong who then went to the
bank. Jong learned of the encashment and realized that his signature was forged. A criminal case
for qualified theft was filed against Sempio.
Samsung demanded that FEBTC credit the P999,500. FEBTC said it was still investigating.
Unsatisfied, Samsung filed a complaint for violation of S23 of NIL. NBI examiner testified that
Jong’s signature was forged. PNP examiner testified that Jong’s signature was genuine. RTC
believed the NBI expert and ordered FEBTC to credit Samsung the P999,500.
CA reversed and absolved FEBTC. It said that assuming there was forgery, this occurred due to
the negligence of Samsung, imputing blame on Kyu, for lack of care in keeping the checks,
which if observed would have prevented Sempio from gaining access thereto.
Hence this petition.
ISSUE:
HELD:
S23 of NIL provides:
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.
When a person deposits money in a general account in a bank, the relationship between the bank
and depositor is that of debtor and creditor. The situation is as if the bank had borrowed
money from the depositor, agreeing to repay it on demand, or had bought goods from the
depositor, agreeing to pay them on demand. Added to this is the bank’s obligation to pay checks
drawn by the depositor in proper form and presented in due course. When the bank receives the
deposit, it impliedly agrees to pay only upon the depositor’s order. The fact that the forgery is
a clever one is immaterial. A bank is bound to know its DEPOSITORs’ signature.
Under S23 of NIL, forgery is a real or absolute defense by the party whose signature is forged.
On the premise that Jong’s signature was forged, FEBTC would be liable since it authorized the
discharge of the forged check even if the bank exerted due diligence in preventing such faulty
discharge.
The first inquiry is whether the check was forged. A document formally presented is presumed
genuine until proven fraudulent. This presumption must be overcome by convincing testimony
and effective illustrations. The Court, like RTC, finds the PNP expert unconvincing. Whenever
confronted with differences in the strokes, she would blandly assert the differences as mere
“variations.” Jong also testified that the signature was not his. This testimony is backed by
factual circumstances.
Now, is Samsung precluded from setting up the defense of forgery under S23 of NIL? CA held
that it was negligent and invoked the doctrine that where a loss must be borne by one of 2
innocent persons, it must be borne by him through whose means it has succeeded or who put into
power of the third person to perpetuate the wrong.
However, Samsung was not negligent here. The mere fact that the forgery was committed by an
employee of the party whose signature was forged does not necessarily imply that such party’s
negligence was the cause of the forgery. Employers do not possess the preternatural gift of
cognition as to the evil that may lurk within the minds of their employees.
In the absence of contrary evidence, we can conclude that there was no negligence on
Samsung’s part. The presumption remains that every person takes ordinary care of his concerns
and that the ordinary course of business has been followed. Negligence must be proven by him
who alleges it. FEBTC was unable to prove negligence.
FEBTC tried to prove that there was no negligence on its part. But the diligence by the bank
would be irrelevant if the drawer is not precluded from setting up the defense of forgery
under S23 by his own negligence. The general rule that the drawee who has paid upon the
forged signature bears the loss remains. The exception arises only when negligence can be
traced on the part of the drawer whose signature was forged, and there is need to weigh the
comparative negligence of the drawer and drawee.
The mere fact that the depositor leaves his check book lying around does not constitute such
negligence to free the bank from liability to him where some person takes advantage of the
opportunity, takes some of the blank checks, and forges the depositor’s signature and collects on
the checks from the bank. And another point is that Samsung is not negligent at all since it
reported the forgery almost immediately upon discovery.
The check here not only totaled nearly P1M, it was also payable to cash. The latter circumstance
should have aroused the suspicion of the bank as it is not ordinary business practice for a check
for such large amount to be made payable to cash or bearer. Given the circumstances, FEBTC
should have ascertained from Jong personally that the signature in the check was his. But even if
the bank performed with utmost diligence, the drawer whose signature was forged may still
recover from the bank as long as he is not precluded from setting up the defense of forgery.
S23 provides that no right to enforce payment of a check can arise out of a forged signature.
21. PNB v. CA, GR 107508, April 25, 1996, Kapunan, J. (Material Alteration)
FACTS:
A check for P97k was issued by DECS payable to Abante Marketing. This was drawn against
PNB.
Drawer: DECS; Payee: Abante; Drawee: PNB; Collecting Bank: Capitol City Development
Bank > PBCOM
On August 11, 1981, Abante, client of Capitol City Development Bank, deposited the check in
his savings account there. Capitol deposited the check with its account with PBCOM which in
turn sent the check to PNB for clearing. PNB cleared the check. PBCOM credited Capitol’s
account. But on October 19, 1981, PNB returned the check to PBCOM and debited PBCOM’s
account for the check for the reason that there was a “material alteration” of the check
number.
PBCOM then debited Capitol’s account and sent the check back to PNB. PNB returned the check
to PBCOM. Capitol could not debit Abante’s account since the latter already withdrawn the
amount of the check on October 15. Capitol demanded PBCOM to recredit its account; PBCOM
demanded recrediting from PNB.
Since Capitol’s demands were not heeded, Capitol sued PBCOM in RTC which in turn filed a
third party complaint against PNB. PNB filed a fourth party complaint against Abante.
RTC ordered PBCOM to recredit Capitol. PNB was ordered to recredit PBCOM. Abante was
ordered to indemnify PNB. CA exempted PBCOM from liability to PNB and ordered PNB to
honor the check. Hence this petition.
ISSUE:
Whether there was material alteration.
HELD: NO.
PNB anchord its position on S125(f) of NIL:
SECTION 125. What constitutes a material alteration. — Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of payment is specified, or any
other change or addition which alters the effect of the instrument in any respect, is a
material alteration.
An alteration is material if it alters the effect of the instrument. It purports to modify the
obligation of a party or an unauthorized addition of words or numbers or other changes to an
incomplete instrument relating to the obligation of a party. In other words, a material alteration is
one which changes the items required to be stated under S1 of NIL.
As to whether the drawee bank may still recover the value of the check from the collecting bank
even if it failed to return the check within the 24hour clearing period because the check was
tampered suffice it to state that since there is no material alteration, PNB has no right to
dishonor it and return it to PBCOM, the same being negotiable in all respects.
22. Enrique Montinola v. PNB et al., GR L2861, February 26, 1951, Montemayor, J.
(Material Alteration)
FACTS:
In April and May 1942, Ubaldo Laya, as provincial treasurer, was ex officio agent of PNB
branch in that province. Mariano Ramos worked under him as assistant agent. In April 1942, the
currency being used in Mindanao, particularly Misamis Oriental and Lanao which had not yet
been occupied by invading Japanese, was the emergency currency issued by the Mindanao
emergency currency board by authority of Pres. Quezon.
Ramos was inducted into the US Armed Forces in the Far East (USAFFE) as disbursing officer.
As such disbursing officer, Ramos went to neighboring province Lanao to procure a cash
advance of P800k for the use of USAFFE in Cagayan de Misamis. Treasurer of Lanao Pedro did
not have that amount in cash, so he gave Ramos P300k in emergency notes and a check for
P500k. On May 2, Ramos went to treasurer Laya of Misamis Oriental to encash the P500k. Laya
did not have enough cash so he gave Ramos P400k in emergency notes and a P100k check
drawn on PNB.
Ramos had no opportunity to cash the check because on June 10, USAFFE forces surrendered to
the Japanese. Ramos was imprisoned until Feb. 12, 1943. About the last days of December 1944
or the first days of January 1945, Ramos allegedly indorsed the check to Montinola.
According to Montinola, Ramos sold him the check for P850k Japanese notes and that Ramos
duly indorsed the check to him. But According to Ramos, they agreed that Ramos was selling
only P30k of the check and thus, he wrote at the back of the document:
"Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited in
the Philippine National Bank to the credit of M. V. Ramos."
This indorsement described by Ramos does not now appear at the back of said check. When
Montinola filed his complaint in 1947, he presented the check. But it was badly mutilated,
blotted, torn, and partly burned. All the tearing, burning, blotting, smearing, and pasting of the
check renders it difficult if not impossible to read some of the words and figures on the check.
Montinola explains that months after indorsing the check to him, Ramos demanded its return,
threatening Montinola with death if he did not return the check. To discourage Ramos from
getting it back, Montinola resorted to mutilating it.
Lara, testifying in court, said that he issued the check only as provincial treasurer and that the
words in parenthesis “Agent, PNB” now appearing under his signature did not appear on the
check when he issued the same. Ramos corroborates this. Thus, this was added after the check
was issued. It is logical to believe that the addition of those words was made after the check had
been transferred by Ramos to Montinola.
We thus now have these facts: Ramos sold P30k of the check to Montinola for P90k Japanese
military notes of which only P45k was paid by Montinola. The writing made by ramos at the
back of the check was an instruction to the bank to pay P30k to Montinola and to deposit the
balance to Ramos’ credit. This writing was obliterated and in its place we now have the supposed
indorsement appearing on the back of the check.
ISSUE:
Whether Montinola can acquire the amount of the check.
HELD: NO.
Based on the facts, Montinola’s complaint cannot prosper. The insertion of “Agent, PNB” which
converts the bank from a mere drawee to a drawer and thus changes its liability is a
material alteration without the consent of the parties liable thereon and so discharges the
instrument S124 of NIL. The check was not legally negotiated within the meaning of NIL. S32
also provides that an indorsement must be of the entire instrument. An indorsement which
purports to transfer to the indorsee a part only of the amount payable does not operate as a
negotiation. Montinola may thus not be regarded as an indorsee. At most, he may be regarded
as a mere assignee of the P30k sold to him by Ramos. As such assignee, he is subject to all
defenses available to the drawer treasurer of Misamis Oriental and against Ramos.
Montinola is not a HDC in S52 of NIL as one of the conditions is that a HDC took the instrument
before it was overdue. When Montinola received the check, it was long overdue. And Montinola
is not even a holder because S191 defines a holder as the payee or indorsee of a bill or note and
Montinola is not a payee. He is also not an indorsee for at most he can only be an assignee.
Montinola is subject to all defenses against Ramos. Ramos cannot collect the value of the check
because it had been issued to him as disbursing officer. The check was issued to Ramos not as
a person but Ramos as the disbursing officer of USAFFE. Thus, he had no right to indorse it
personally to Montinola. It was negotiated in breach of trust, hence he transferred nothing to
Montinola.
23. Intestate Estate of Victor Sevilla, Simeon Sadaya v. Francisco Sevilla, GR L17845,
April 27, 1967, Sanchez, J. (Accommodation Party)
FACTS:
Victor Sevilla, Oscar Varona, and Simeon Sadaya executed jointly and severally in favor of BPI
or its order a promissory note for P15k with 8%interest per annum payable on demand. The
entire P15k proceeds was received by Varona alone. Victor and Sadaya signed the note as co
makers only as a favor to Varona. Payments were made until the outstanding balance was
P4,850. No payment was made thereafter.
BPI collected from Sadaya the balance with interest, totaling P5,746.12. Varona failed to
reimburse Sadaya despite demands.
Victor died. Francisco Sevilla was named administrator of Victor’s estate. Sadaya filed a
creditor’s claim for the P5.7k plus attorney’s fees of P15k. Francisco claims that Victor did not
receive any amount as consideration for the note but signed only as surety for Varona.
CFI admitted Sadaya’s claim and directed Francisco to pay it from any available funds from the
estate. CA disallowed the claim. Hence this petition.
ISSUE:
Whether Sadaya may recover from Victor.
HELD: NO.
Victor and Sadaya were joint and several accommodation makers of the P15k PN. As such
makers, their individual obligation to BPI is no different from that contracted by Varona. While
they did not receive value on the PN, they executed it with the purpose of lending their names
to Varona. Their liability to BPI is as expressed in the note joint and several. BPI could have
pursued its right to collect the unpaid balance against either Victor or Sadaya.
Sadaya could have sought reimbursement from Varona. As between them, there is an implied
contract of indemnity.
The three cosigners’ relation visàvis the bank is that of joint and several creditors. We now
look at the relationship between them inter se. Had payment been made by Varona, Varona could
not have sought reimbursement from Victor or Sadaya. After all, the proceeds of the loan went to
him.
A solidary accommodation maker who made payment has the right to contribution from his
coaccomodation maker in the absence of agreement to the contrary between them. This springs
from an implied promise between the accommodation makers to share equally the burdens that
may ensue from their having consented to stamp their signatures on the PN. For lending their
signatures to the principal debtors, they placed themselves in the category of mere joint
guarantors of the former. Not one of them benefited from the PN. They stand on the same
footing. Their burdens should be equally spread.
Now, to the requisites before one accommodation maker can seek reimbursement from a co
accommodation maker. By Art. 18 of NCC, in matters not covered by special laws, their
deficiency “Shall be supplied by the provisions of this Code.” Nothing in NIL defines the right
of one accommodation maker to seek reimbursement from another. Thus we go to NCC. Since
Sevilla and Sadaya are coguarantors of Varona, Art. 2073 of NCC applies:
"ART. 2073. When there are two or more guarantors of the same debtor and for the same
debt, the one among them who has paid may demand of each of the others the share
which is proportionally owing from him
If any of the guarantors should be insolvent, his share shall be borne by the others,
including the payer, in the same proportion.
The provisions of this article shall not be applicable, unless the payment has been
made in virtue of a judicial demand or unless the principal debtor is insolvent."
This applies where one surety paid the debt to the creditor and seeks contribution from
cosureties.
Thus, (1) A joint and several accommodation maker of a negotiable promissory note may
demand from the principal debtor reimbursement for the amount that he paid to the payee; and
(2) a joint and several accommodation maker who pays on the said promissory note may directly
demand reimbursement from his co-accommodation maker without directing his action against
the principal debtor provided that (a) he made the payment by virtue of a judicial demand or (b)
the principal debtor is insolvent.
Since Sadaya paid voluntarily without judicial demand, and there is no evidence that Varona was
insolvent, CA’s decision was affirmed.
The check was issued to Ernestina in consideration of the waiver or quitclaim by Ernestina over
a property which GSIS agreed to sell to Benares’ clients, Sps. Ong, with the understanding that if
GSIS approves the compromise agreement with Sps. Ong, the check will be encashed. Since the
compromised was not approved, Benares issued Check 299 also for P45k to replace check 553
payable also to Ernestina and signed by both Benares and Santos.
Check 299, when deposited by Ernestina, was dishonored for insufficiency of funds. A criminal
case for BP 22 was filed against Santos and Benares. During PI of the criminal charge, Santos
tendered cashier’s check 152 for P45k to Ernestina. Ernestina refused to receive it. Santos
encashed the check and deposited the cash with the clerk of court.
Trial court held that Art. 1256 on consignation is inapplicable. CA reversed. Hence this petition.
ISSUE:
Whether Mover Enterprises as a corporation may be liable on the check.
HELD: NO.
Ernestina claims that the accommodation party in this case is Mover Enterprises and not Santos
who merely signed the check as VP. Thus, Santos is not liable thereon.
Sec. 29 of NIL provides xxx. To be an accommodation party, a person must 1) be a party to the
instrument signing as maker, drawer, acceptor, or indorser, 2) not receive value therefor, and 3)
sign for the purpose of lending his name for the credit of some other person. Based on these, it is
not a valid defense that the accommodation party did not receive any valuable consideration
when he executed the instrument. He is liable to a holder for value as if the contract was not for
accommodation in whatever capacity such accommodation party signed the instrument,
whether primarily or secondarily. In lending his name to the accommodated party, the
accommodation party is in effect a surety for the latter.
Assuming arguendo that Mover is the accommodation party, may it be held liable? No. Sec.29
does NOT apply to corporations. This is because the issue or indorsement of negotiable paper by
a corporation without consideration and for the accommodation of another is ULTRA VIRES.
Thus, one who has taken the instrument knowing of the accommodation nature thereof cannot
recover against a corporation where it is only an accommodation party. If the form of the
instrument or nature of transaction is such as to charge the indorsee with knowledge that the
issue or indorsement by the corporation is for the accommodation of another, he cannot recover
against the corporation thereon.
As exception, an officer or agent of a corporation shall have the power to execute or indorse a
negotiable paper in the name of the corporation for the accommodation of a third person only if
specifically AUTHORIZED to do so. Corporate officers, like the president and VP, have no
power to execute for mere accommodation a NI of the corporation for their individual debts in
relation to matters in which the corporation has no legitimate concern. Since the instrument
cannot be enforced against the corporation, the SIGNATORIES thereof shall be personally
liable therefor.
Ernestina was charged with knowledge that the check was issued for the personal account of
Benares. That it was a personal undertaking of said corporate officer was apparent to Ernestina
due to her personal involvement in the financial arrangement and the fact that she had no
transaction directly with the corporation. There is thus no legal obstacle for Ernestina’s claims
personally against Benares and Santos.
Since Santos is an accommodation party and thus liable on the value of the check, he is enabled
to resort to consignation where his tender of payment had been refused by Ernestina.
25. Stelco Marketing Corporation v. CA, GR 96160, June 17, 1992, Narvasa, CJ
(Accommodation Party)
FACTS:
Stelco sells structural steel bars. On 7 different occasions, it sold to RYL Construction quantities
of steel bars the aggregate prices of which were P126k. although the invoices issued by Stelco
stipulated that RYL would pay cash on delivery, RYL made no payments despite demands. RYL
gave to Armstrong Industries, Stelco’s sister corporation, a check drawn against Metrobank for
P126k. This was a company check of another corporation, Steelweld Corporation, signed by its
president Limson and VP Torres.
The check was issued by Limson at the behest of his friend, Lim, president of RYL. Lim had
asked Limson for financial assistance and Limson agreed to give Lim a check only by way of
accommodation only as “guaranty, but not to pay for anything.”
When Armstrong deposited the check, it was dishonored for insufficient funds. The check, when
deposited, had the indorsements of RYL Construction, followed by that of Armstrong Industries.
4 years after issuance of the check, Stelco filed in RTC a civil complaint against RYL and
Steelweld to recover the value of the steel bars sold to RYL for P126k. RYL could no longer be
located. Only Steelweld answered, alleging that Stelco is a complete stranger to it. The check
was given to Lim only to be used as collateral but Lim, in breach of the agreement, negotiated
the check for another purpose.
RTC ordered Steelweld to pay to Stelco the P126k with interest. CA reversed and dismissed the
complaint. Hence this petition.
ISSUE:
Whether Stelco is a holder for value of the check
HELD: NO.
The crucial question is whether Stelco ever became a HDC of the check, a bearer instrument. It
never did.
As to an accommodation party like Steelweld, the fourth condition for a HDC lack of notice of
infirmity in the instrument or defect in title of the persons negotiating it, has no application
because S29 preserves the right of recourse of a holder for value against an accommodation party
notwithstanding that such holder knew him to be only an accommodation party.
Stelco claims that it should be a holder for value of Steelweld’s check since it was in actual
possession thereof. But there is no evidence whatever that Stelco’s possession of the check ever
dated back to any time before the instrument’s presentment and dishonor. There is no
evidence that the check was ever given to it, or indorsed to it in any manner or form in
payment of an obligation, or for any other purpose before it was presented for payment.
Contrarily, the factual finding of CA is that Stelco never became a holder for value and that
nowhere in the check does the name of Stelco appear as payee, indorsee, or depositor.
What the record shows is that 1) the Steelweld check was given by its president to Lim. 2) it was
given only by way of accommodation to be used as collateral, 3) Lim indorsed it to Armstrong in
payment of an obligation, 4) Armstrong deposited the check to its account after indorsing it, 5)
the check was dishonored. The record does not show any participation by Stelco in any manner
in the transactions, or communication of any sort between Steelweld and Stelco, or between
either of them and Armstrong.
After the check was deposited and dishonored, Stelco came into possession in some way and was
able, several years after dishonor, to give it in evidence at the trial of the civil case it instituted
against the drawers Limson and Torres, and RYL. But possession of a NI AFTER presentment
and dishonor, or payment, is inconsequential. It does not make the possessor a holder for
value.
Stelco thus did not become a holder before it was overdue and without notice that it had been
previously dishonored, and it did not take the check in GF and for value.