SAN MIGUEL CORPORATION v. BARTOLOME PUZON, JR.G.R. No.

167567 | 22 September 2010

Completion and Delivery

DOCTRINE: When a check is delivered, the intent/purpose of the act of

delivery determines whether the same is given effect or given merely
as a security. The first situation transfers ownership to the payee,
while the latter does not.

FACTS:

• Puzon was a dealer of San Miguel beer products, buying the same
on credit.

• To ensure payment, and as a business practice, San Miguel

required Puzon to issue postdated checks equivalent to the value of
the products purchased on credit.

• The checks are then returned after full payment of the value of
the transaction.

• Following this arrangement, Puzon purchased products to which

he issued two checks to cover the transaction.

• A month later, Puzon visited San Miguel’s Sales Office to reconcile

his account with the latter. Puzon allegedly requested to see one of the
checks. When he got hold of both checks (attached to a bond paper),
he immediately left the office, bringing the check with him.

• San Miguel then sent a demand letter asking for the checks back.
After being ignored, San Miguel filed a criminal complaint for theft
against Puzon.

• DOJ dismissed the case on the ground that the non-payment of a

debt cannot give rise to a criminal case. It also established that the
relationship between the two is one of creditor-debtor.

• CA found that the postdated checks issued were merely as a

security of his purchases and not intended to be encashed. It
concluded that SMC did not acquire ownership of the checks.

• San Miguel then argued that the checks’ ownership were

transferred to it because they were issued in payment of the purchases
and not merely for security.

ISSUE:Whether or not the delivery of the checks to SMC vested it

ownership over the checks.

Ruling:

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 No, the delivery of the check did not make SMC the owner
thereof. The check was not given as payment, there being no intent to
give effect to the instrument.

• “Delivery” as a term used in Sec. 12 means that the party

delivering did so for the purpose of giving effect thereto. Otherwise, it
cannot be said that there has been delivery of the negotiable
instrument. Once there is delivery, the person to whom the instrument
is delivered gets the title to the instrument completely and irrevocably.
The purpose of the delivery will determine if ownership is transferred:

• (1) If the purpose is the give effect to the instrument, title or

ownership transfers upon delivery.

• (2) If the intent to give effect is missing, ownership is retained by

the person who delivered.

• The check was only meant to cover the transactions in the

meantime, and Puzon was to pay for the transaction by some other
means other than the check.

EQUITABLE BANKING CORPORATION, INC. v. SPECIAL STEEL

PRODUCTS and AUGUSTO L. PRADO G.R. No. 175350 | 13 June
2012

Liabilities of Acceptor

DOCTRINE:

Banks have the duty to scrutinize the checks deposited with it, for a
determination of their genuineness and regularity. The law holds banks to a
high standard because banks hold themselves out to the public as experts in
the field.

The nature of crossed checks should place a bank on notice that it should
exercise more caution or expend more than a cursory inquiry, to ascertain
whether the payee on the check has authorized the holder to deposit the
same in a different account

FACTS:

• Special Steel Products (SSP) sells steel products. International

Copra Export Corp. (Interco) is it’s regular customer. Jose Uy is
Interco’s employee in charge of purchasing department, and son-in-law
of Interco’s majority stockholder.

• In 1991, SSP sold welding electrodes to Interco. Corresponding

Sales Invoices were issued for the transactions

• In payment for the welding electrodes, Interco issued 3 Equitable

checks payable to the order of SSP. Each check was crossed with the
notation “account payee only.”

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• The case records disclose that Uy presented each crossed check
to Equitable, claiming that he had good title over them. The records do
not identify the signatory for the checks, nor explain how Uy came into
possession of the checks.

• Uy demanded the deposit of the checks to his personal accounts

with Equitable, which was allowed by Equitable on the assumption that
Uy – as the son-in-law of the majority stockholder, was acting pursuant
to Interco’s orders. Equitable also relied on his status as a valued
client.

• SSP then reminded Interco of the unpaid welding electrodes.

Interco replied saying it already issued 3 checks payable to SSP.

• After Interco found out about Uy’s scheme, it issued 3 more

checks covering the payment but only some of the interest amount, it
not being the cause of the delay.

• SSP then filed a complaint for damages and writ of preliminary

attachment against Uy and Equitable alleging negligence on
Equitable’s part when they ignored the restrictive nature of the checks
and the subsequent depositing of the amount in Uy’s account.

• Equitable moved to dismiss for lack of cause of action,

maintaining that, since Equitable and SSP did not enter into any
contract, the former cannot be liable for actual damages. Equitable
further argued that it is not liable because it accepted the 3 crossed
checks in good faith. o Due to Uy’s close relations with the drawer of
the checks, it had basis to assume that the drawer authorized Uy to
countermand the original order.

• The RTC ruled that the crossed checks belonged solely to the
payee named therein, SSPI. Since SSPI did not authorize anyone to
receive payment in its behalf, Uy clearly had no title to the checks and
Equitable had no right to accept the said checks from Uy. o Equitable
was negligent in permitting Uy to deposit the checks in his account
without verifying Uy’s right to endorse the crossed checks.

• It reiterated that banks have the duty to scrutinize the checks

deposited with it, for a determination of their genuineness and
regularity. The law holds banks to a high standard because banks hold
themselves out to the public as experts in the field.

ISSUE: Whether or not Equitable is grossly negligent when it allowed

Uy’s demands in having the checks deposited to his personal account?

HELD:
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Yes, banks have the duty to scrutinize the checks deposited with it, for
a determination of their genuineness and regularity. The law holds
banks to a high standard because banks hold themselves out to the
public as experts in the field.

• • The checks that Interco issued in favor of SSP were all crossed,
made payable to SSP’s order, and contained the notation “account
payee only.” This creates a reasonable expectation that the payee
alone would receive the proceeds of the checks and that diversion of
the checks would be averted. This expectation arises from the
accepted banking practice that crossed checks are intended for
deposit in the named payee’s account only and no other.

• • At the very least, the nature of crossed checks should place a

bank on notice that it should exercise more caution or expend more
than a cursory inquiry, to ascertain whether the payee on the check
has authorized the holder to deposit the same in a different account.

• • Since the banking business is impressed with public interest,

the trust and confidence of the public in it is of paramount importance.
Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are required of it.”

(Patrimonio v. Gutierrez, G.R. No. 187769, [June 4, 2014])

Facts:
The petitioner and the respondent Napoleon
Gutierrez (Gutierrez) entered into a business venture under the name
of Slam Dunk Corporation (Slum Dunk)
In the course of their business, the petitioner pre-signed several
checks to answer for the expenses of Slam Dunk. Although signed,
these checks had no payee's name, date or amount. The blank checks
were entrusted to Gutierrez with the specific instruction not to fill them
out without previous notification to and approval by the petitioner.
In the middle of 1993, without the petitioner's knowledge and
consent, Gutierrez went to Marasigan (the petitioner's former
teammate), to secure a loan in the amount of P200,000.00 on the
excuse that the petitioner needed the money for the construction of
his house.
Marasigan acceded to Gutierrez' request and gave him
P200,000.00 sometime in February 1994. Gutierrez simultaneously
delivered to Marasigan one of the blank checks the petitioner pre-
signed with Pilipinas Bank, Greenhills Branch, Check No. 21001764
with the blank portions filled out with the words "Cash" "Two Hundred
Thousand Pesos Only", and the amount of "P200,000.00".
On May 24, 1994, Marasigan deposited the check but it was
dishonored for the reason "ACCOUNT CLOSED." It was later revealed
that petitioner's account with the bank had been closed since May 28,
1993.

ISSUES:

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 1.  Whether respondent Gutierrez has completely filled out
the subject check strictly under the authority given by
the petitioner
||| 
Ruling

1. No, applicable rule is Sec. 14 of Negotiable Instruments law.

While Gutierrez here had prima facie authority to complete the
check, such prima facie authority does not extend to its use (i.e.,
subsequent transfer or negotiation) once the check is completed.
Only the authority to complete the check is presumed.

Gutierrez was only authorized to use the check for business

expenses; thus, he exceeded the authority when he used the
check to pay the loan he supposedly contracted for the
construction of petitioner's house. This is a clear violation of the
petitioner's instruction to use the checks for the expenses of
Slam Dunk. It cannot therefore be validly concluded that the
check was completed strictly in accordance with the authority
given by the petitioner.

Metropolitan Bank and Trust Co. v. Chiok, G.R. Nos. 172652,

175302 & 175394, [November 6, 2014])

What is a Cashier’s Check and Manager’s Check? (2015 Bar)

The legal effects of a manager's check and a cashier's check are

the same. A manager's check, like a cashier's check, is an order of the
bank to pay, drawn upon itself, committing in effect its total resources,
integrity, and honor behind its issuance. By its peculiar character and
general use in commerce, a manager's check or a cashier's check is
regarded substantially to be as good as the money it represents.

It is deemed pre-accepted by the bank from the moment of

issuance. Thus good as cash

(Hongkong& Shanghai Banking Corp. Ltd.-Phil. Branch v.

Commissioner of Internal Revenue, G.R. Nos. 166018 &
167728, [June 4, 2014])

Facts:

HSBC's investor-clients maintain Philippine peso and/or foreign

currency accounts, which are managed by HSBC through instructions
given through electronic messages. The said instructions are standard
forms known in the banking industry as SWIFT, or "Society for
Worldwide Interbank Financial Telecommunication." In purchasing
shares of stock and other investment in securities, the investor-clients
would send electronic messages from abroad instructing HSBC to debit
their local or foreign currency accounts and to pay the purchase price
therefor upon receipt of the securities

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 Are electronic messages considered as bills of exchange?

The electronic messages received by HSBC from its investor-

clients abroad instructing the former to debit the latter's local and
foreign currency accounts and to pay the purchase price of shares of
stock or investment in securities do not properly qualify as either
presentment for acceptance or presentment for payment.||| 

The electronic messages are not signed by the investor-clients as

supposed drawers of a bill of exchange; they do not contain an
unconditional order to pay a sum certain in money as the payment is
supposed to come from a specific fund or account of the investor-
clients; and, they are not payable to order or bearer but to a
specifically designated third party. Thus, the electronic messages are
not bills of exchange as they do not comply with the requisites of
negotiability.

|  (Areza v. Express Savings Bank,G.R. No. 176697,

[September 10, 2014])
Facts:
Petitioners Cesar V. Areza and Lolita B. Areza maintained two
bank deposits with respondent Express Savings Bank's Biñan
branch.
They were engaged in the business of "buy and sell" of brand
new and second-hand motor vehicles. On 2 May 2000, they received
an order from a certain Gerry Mambuay (Mambuay) for the
purchase of a second-hand Mitsubishi Pajero and a brand-new
Honda CRV.
The buyer, Mambuay, paid petitioners with nine (9) Philippine
Veterans Affairs Office (PVAO) checks payable to different payees
and drawn against the Philippine Veterans Bank (drawee), each
valued at Two Hundred Thousand Pesos (P200,000.00) for a total of
One Million Eight Hundred Thousand Pesos (P1,800,000.00).
Such checks were then subsequently deposited to Petitioner’s
bank accounts and cleared by the Drawee. However, it was later
found out that such checks where already materially altered prior to
its clearance, and dishonored by Drawee later, which resulted into
Express savings bank debiting the amount of the dishonored check
from petitioner’s accounts.

Issue:
When the drawee accepted/cleared the check, is it liable according to
the altered tenor of acceptance based on Sec. 63 of NIL(Negotiable
Instruments Law) or according to its original tenor based on Sec. 124 of the
NIL?

Ruling:

Liable according to original tenor only despite tenor of

acceptance. On one hand, Sec. 63 of the NIL provides that a drawee
that accepts an instrument engages that he will pay it according to the
tenor of his acceptance. On the other hand, Sec. 124 of the NIL
provides that a material alteration avoids an instrument except as
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against an assenting party and subsequent indorsers, but a holder in
due course may enforce payment according to its original tenor.

Thus, when the drawee bank pays a materially altered check, it

violates the terms of the check, as well as its duty to charge its client's
account only for bona fide disbursements he had made. If the drawee
did not pay according to the original tenor of the instrument, as
directed by the drawer, then it has no right to claim reimbursement
from the drawer, much less, the right to deduct the erroneous payment
it made from the drawer's account which it was expected to treat with
utmost fidelity.

The drawee, however, still has recourse to recover its loss. It may
pass the liability back to the collecting bank which is what the drawee
bank exactly did in this case. It debited the account of Equitable-PCI
Bank for the altered amount of the checks.

The Court here, upheld the view that the acceptor/drawee is

liable only to the extent of the bill prior to alteration.
(Chua v. People, G.R. No. 196853 , [July 13, 2015])

Facts

Chua and private complainant Philip See (See) were long-time friends
and neighbors. On different dates from 1992 until 1993, Chua issued
several postdated PSBank checks of varying amountsto See pursuant
to their rediscounting arrangement at a 3% rate

However, See claimed that when he deposited the checks, they were
dishonored either due to insufficient funds or closed account. Despite
demands, Chua failed to make good the checks. Hence, See filed on
December 23, 1993 a Complaint  for violations of BP 22 before the
Office of the City Prosecutor of Quezon City. He attached thereto a
demand letter dated December 10, 1993||| 

Issue:

Can a notice of dishonor be issued prior to the issuance of checks? Can

a demand letter that precedes the issuance of checks constitute as
sufficient notice of dishonor?

Ruling:

No, such notice must be issued only after said checks have been
dishonored and within 5 banking days from such notice failed to satisfy
said amount can the prima facie presumption of issuance of an
unfunded check arise. As such gives the accused an opportunity to
avert prosecution and serves to mitigate the harshness of the law in its
application

In other words, if such notice of non-payment/dishonor by the drawee

bank is not sent to the maker or drawer of the bum check, or if there
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is no proof as to when such notice was received by the drawer,
then the presumption or prima facie evidence as provided in
Section 2 of B.P. Blg. 22 cannot arise, since there would simply
be no way of reckoning the crucial 5-day period.

Checks can only be dishonored after they have been issued and
presented for payment. Before that, dishonor cannot take place. Thus,
a demand letter that precedes the issuance of checks cannot
constitute as sufficient notice of dishonor within the contemplation
of BP 22.

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 Land Bank vsKho G.R. No. 205839, (July 27, 2016)

Facts:

 On December 28, 2005, Kho opened an account with Land Bank
in order to leverage a business deal with Red Orange;

He purchased Land Bank Manager’s check No. 07410 worth

₱25,000,000.00 payable to Red Orange and dated January 2, 2006;

He also gave Rudy Medel a photocopy of the check that the bank
had given him;

After his visit to the Bank, the deal with Medel and Red Orange
did not push through;

He picked up check No. 07410 from the bank on January 2, 2006,

without informing the bank that the deal did not materialize;

Afterwards, Red Orange presented a spurious copy of check No.

07410 to BPI, Kamuning for payment;

Land Bank cleared the check;

However, Kho never negotiated the actual check. It was in his

possession the whole time. Thus Kho seeks reimbursement from
LandBank.

However LandBank contends that Kho is precluded from raising

the defense of forgery because of his failure to notify the LandBank
that the deal did not push through and in giving Medel a Copy of the
check.

Issue:
W/N Kho is precluded from setting up the defense of
Forgery?

Ruling:

No. A drawer or a depositor of the bank is precluded from

asserting the forgery if the drawee bank can prove his failure to
exercise ordinary care and if this negligence substantially contributed
to the forgery or the perpetration of the fraud. While the act of giving
Medel a Photocopy of the check may have allowed the latter to create
a duplicate, this cannot possibly excuse Land Bank’s failure to
recognize the check itself – not just the signature – but the check itself
is fake.

More importantly, Land Bank itself furnished Medel the

photocopy without objecting to the latter’s intention of giving it to E.
Kho’s failure to inform Land Bank that the deal did not push through
does not justify Land Bank’s confirmation and clearing of a fake
check bearing the forged signature of its own officers.

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 Whether or not the deal pushed through, the check remained in
Kho’s possession. He was entitled to a reasonable expectation that the
banks would not release any funds corresponding to the check.

RCBC vs ODRADA G.R. No. 219037, Oct. 19, 2016

Facts

In April 2002, respondent Noel M. Odrada (Odrada) sold a second

hand Mitsubishi Montero (Montero) to Teodoro L. Lim (Lim) for One
Million Five Hundred Ten Thousand Pesos (Php1,510,000).

Of the total consideration, Six Hundred Ten Thousand Pesos

(Php610,000) was initially paid by Lim and the balance of Nine
Hundred Thousand Pesos (P900,000) was paid in manager’s check
issued by RCBC dated April 12, 2002.

 After the issuance of the manager's checks and their turnover to

Odrada but prior to the checks' presentation, Lim notified Odrada in a
letter dated 15 April 2002 that there was an issue regarding the road
worthiness of the Montero. A meeting was requested with regard to the
matter. However, Odrada did not go to the slated meeting and instead
deposited the manager's checks with International Exchange Bank
(Ibank) on April 16, 2002 and re-deposited them on April 19, 2002 but
the checks were dishonored both times apparently upon Lim's
instruction to RCBC. Consequently, Odrada filed a collection suit
against Lim and RCBC in the Regional Trial Court of Makati.

In his Answer, Lim alleged that the cancellation of the manager’s

check was at his instance, upon discovery of the misrepresentations by
Odrada about the Montero's road worthiness. Lim claimed that the
cancellation was not done ex parte but through a letter dated 15 April
2002. He further alleged that the letter was delivered to Odrada prior
to the presentation of the manager's checks to RCBC.

ISSUE/S:WON drawee bank can still deny payment of a manager’s

check due to the Personal Defense of Lim that a defective Montero was
sold to Lim.

Ruling:

YES. As a general rule, the drawee bank is not liable until it

accepts. Acceptance, therefore, creates a privity of contract between
the holder and the drawee so much so that the latter, once it accepts,
becomes the party primarily liable on the instrument.

A manager’s check makes the bank primarily liable as there is

already acceptance upon issuance of a manager’scheck. HOWEVER,
the SC ruled that the issuing bank could validly refuse payment when
the holder is NOT a holder in due course.

In this case,the Court of Appeals gravely erred when it considered

Odrada as a holder in due course.
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 To be a holder in due course, the law requires that a party must
have acquired the instrument in good faith and for value. Odrada
did not acquire the instrument in good faith as he sold a defective
Montero. He immediately presented the check for payment upon notice
of the Montero’s defect.

RCBC acted in good faith in following the instructions of Lim. The

records show that Lim notified RCBC of the defective condition of the
Montero before Odrada presented the manager's checks.

Section 58 of the Negotiable Instruments Law provides: "In the

hands of any holder other than a holder in due course, a negotiable
instrument is subject to the same defenses as if it were non-
negotiable. xxx. "Since Odrada was not a holder in due course, the
instrument becomes subject to personal defenses under the Negotiable
Instruments Law. Hence, RCBC may legally act on a countermand by
Lim, the purchaser of the manager's checks.

(Ubas, Sr. v. Chan, G.R. No. 215910, [February 6, 2017])

This case stemmed from a Complaint for Sum of Money with

Application for Writ of Attachment (Complaint) filed by petitioner
against respondent Wilson Chan (respondent) before the Regional Trial
Court of Catarman, Northern Samar, Branch 19 (RTC)

During trial, petitioner testified that on January 1, 1998, he

entered into a verbal agreement with respondent for the supply of
gravel, sand, and boulders for the Macagtas Dam project. He
presented as the only proof of their business transaction the subject
checks issued to him by respondent and delivered to his office by
respondent's worker on different occasions, but when petitioner
presented the subject checks for encashment, the same were
dishonored due to a stop payment order. As such, respondent was
guilty of fraud in incurring the obligation.

For his part, respondent admitted to having issued the subject

checks. However, he claimed that they were not issued to petitioner,
but to Engr. Merelos for purposes of replenishing the project's
revolving fund.

Issue:Whether or not the said checks may be used as basis for

Petitioner’s Monetary Claimagainst respondent?

Ruling:

In a suit for a recovery of sum of money, as here, the plaintiff-

creditor [(petitioner in this case)] has the burden of proof to show
that defendant [(respondent in this case)] had not paid [him] the
amount of the contracted loan.
However, it has also been long established that where the
plaintiff-creditor possesses and submits in evidence an instrument
showing the indebtedness, a presumption that the credit has not
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 been satisfied arises in [his] favor. Thus, the defendant is, in
appropriate instances, required to overcome the said presumption
and present evidence to prove the fact of payment so that no
judgment will be entered against him."  This presumption stems
from Section 24 of the NIL, which provides that:
Section 24. Presumption of Consideration. —
Every negotiable instrument is deemed prima facie to
have been issued for a valuable consideration; and every
person whose signature appears thereon to have become
a party thereto for value.
As mentioned, petitioner had presented in evidence the three
(3) dishonored checks which were undeniably signed by respondent.
Having failed to overcome such presumption, respondent is thus
held liable.

Besides, Section 16 of the NIL provides that when an

instrument is no longer in the possession of the person who signed
it and it is complete in its terms, "a valid and intentional delivery by
him is presumed until the contrary is proved," as in this case.

 (Evangelista v. Screenex, Inc., G.R. No. 211564, [November

20, 2017])

Facts:
Sometime in 1991, [Evangelista] obtained a loan from respondent
Screenex, Inc. which issued two (2) checks to [Evangelista]. There
were also vouchers of Screenex that were signed by the accused
evidencing that he received the 2 checks in acceptance of the loan
granted to him.
As security for the payment of the loan, [Evangelista] gave two (2)
open-dated checks, both pay to the order of Screenex, Inc. From the
time the checks were issued by [Evangelista], they were held in safe
keeping together with the other documents and papers of the
company by Philip Gotuaco, Sr., father-in-law of respondent
Alexander Yu, until the former's death on 19 November 2004.
Before the checks were deposited, there was a personal demand
from the family for [Evangelista] to settle the loan and likewise a
demand letter sent by the family lawyer.
On 25 August 2005, petitioner was charged with violation of Batas
Pambansa (BP) Blg. 22
Issue:
Whether or not Petitioner Evangelista is still liable for the total
amount of the check?
Ruling:
No. It is a settled rule that the creditor's possession of the
evidence of debt is proof that the debt has not been discharged by
payment. It is likewise an established tenet that
a negotiable instrument is only a substitute for money and not
money, and the delivery of such an instrument does not, by itself,
operate as payment.
However, payment is deemed effected and the obligation for
which the check was given as conditional payment is treated
discharged, if a period of 10 years or more has elapsed from the date
indicated on the check until the date of encashment or presentment
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for payment. The failure to encash the checks within a reasonable
time after issue, or more than 10 years in this instance, not only
results in the checks becoming stale but also in the obligation to pay
being deemed fulfilled by operation of law.
While it is true that the delivery of a check produces the effect of
payment only when it is cashed, pursuant to Art. 1249 of the Civil
Code, the rule is otherwise if the debtor is prejudiced by the creditor's
unreasonable delay in presentment. The acceptance of a check
implies an undertaking of due diligence in presenting it for
payment, and if he from whom it is received sustains loss by
want of such diligence, it will be held to operate as actual
payment of the debt or obligation for which it was given.

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