MIDTERMS: NEGOTIABLE INSTRUMENTS
De Leon
L.
DEFECTIVE NEGOTIABLE INSTRUMENTS
SECTION 14. Blanks; When May Be Filled. — Where the instrument
is wanting in any material particular, the person in possession thereof
has a prima facie authority to complete it by filling up the blanks
therein. And a signature on a blank paper delivered by the person
making the signature in order that the paper may be converted into a
negotiable instrument operates as a prima facie authority to fill it up as
such for any amount. In order, however, that any such instrument
when completed may be enforced against any person who became a
party thereto prior to its completion, it must be filled up strictly in
accordance with the authority given and within a reasonable time. But
if any such instrument, after completion, is negotiated to a holder in
due course, it is valid and effectual for all purposes in his hands, and
he may enforce it as if it had been filled up strictly in accordance with
the authority given and within a reasonable time.
When may blanks be filled?
When the instrument is wanting in any material particular.
Who has prima facie authority to fill it?
The person in possession of the note.
How does a signature on a blank paper operate, if it’s delivered by
the person making such signature?
It operates as prima facie authority to fill it up as such for any amount,
in order that the paper may be converted into a negotiable instrument.
How can the note be enforceable to a party prior to its
completion?
It must be filled up strictly in accordance with the authority given and
within a reasonable time.
Does it hold true if the note is negotiated to a holder in due
course?
No, if after completion, if it is negotiated to a HDC, then, it is valid and
effectual for all purposes in his hands.
Two steps involved in the issuance of a negotiable instrument-
1. (It must be complete) The mechanical act of writing the
instrument completely in accordance with Sec. 1.
2. (It must be delivered) The delivery of the complete
instrument by the maker or the drawer to the payee or
holder, with the intention of giving effect to it.
Defective Negotiable Instruments: those instruments which are
neither complete nor delivered, or both. Thus:
Application of Secs 14, 15 , and 16
Sec 14: incomplete, but delivered (I-D) [Personal Defense]
HDC- you cannot raise SEC 14; if not HDC- apply Sec 14.
Sec 15: incomplete and undelivered (I-U)
Sec 16: complete, but undelivered. (C-U)
RULES WHERE INSTRUMENT IS INCOMPLETE BUT DELIVERED
(SEC 14)
1. Authority to fill up the blanks: the holder has prima facie authority
to complete an incomplete instrument by filling up the blanks.
What are the blanks to be filled?
Those which are of material particular, such as those blanks for date,
due date, name of payee, amount, or rate of interest.
What is a material alteration?
A material alteration is defined in Section 125 of the NIL to be one
which changes the date, the sum payable, the time or place of
payment, the number or relations of the parties, the currency in which
payment is to be made or one 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.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S.
Does it give the holder the right to alter?
No. The holder has not authority to change the amount after it has
been filled in.
Example: M issues a note to P with the space for the date left blank in
payment for goods purchased by M from P. This gives P prima facie
authority to fill up the blank.
2. Authority to put any amount
A signature on a blank paper delivered in order that it may be
converted into a negotiable instrument operates as prima facie
authority to fill it up as such for any amount.
TN: there must be intention on the part of M to convert the blank paper
into a negotiable instrument.
Example: M delivered a blank paper containing his signature to P. In
order that P may have the authority to fill up for any amount, it must be
shown that the purpose of M was to convert the said blank paper
into a negotiable instrument. Absent this showing, there cannot arise
a prima facie authority on the part of P to fill it up for any amount.
3. Right against party prior to completion
The instrument may be enforced only against a party prior to
completion if filled up strictly in accordance with the authority given and
within a reasonable time.
Example: M authorized P to put in the blank P1,000.00. However, P
inserts P2,000.00 and indorses the note to A, from A to B, and from B
to C, who is not a holder in due course. It is believed that C could
collect nothing from M, not being holder in due course.
Burden to Rebut
The person who signed his name has the burden to rebut the
presumption of agency by contrary proof of want of authority, or
proving that the authority granted was exceeded.
4. Right of holder in due course.
The defense that the instrument had not been filled up in accordance
with the authority given and within a reasonable time is not available
as against a holder in due course (Personal Defense).
Example: Let us now assume that C is a holder in due course. The
defense that P exceeded his authority will not avail against C, since
being a holder in due course, the note is valid and effective for all
purposes in his hands and he may enforce it as if it had been filled up
strictly in accordance with the authority given and within a reasonable
time.
Cases:
BANK OF AMERICA vs. PHILIPPINE RACING CLUB INC
| G.R. No. 150228 | July 30, 2009
TOPIC FROM THE SYLLABUS: DEFECTIVE NEGOTIABLE
INSTRUMENTS
There are always two steps involved in the issuance of every
negotiable instrument, namely:
(1) the mechanical act of writing the instrument completely and in
accordance with the requirements of Section 1; and
(2) the delivery of the complete instrument by the maker or the drawer
to the payee or holder with the intention of giving effect to it.
Such instrument, complete and delivered, is negotiable and may be
enforced accordingly.
FACTS
Respondent Philippine Racing Club Inc. (PRCI) maintains several
accounts with different banks. Among those accounts maintained was
a current account with herein petitioner, Bank of America (BA). The
authorized joint signatories with respect to said current account were
PRCI‘s President Antonia Reyes and Vice President for Finance,
Gregorio Reyes.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
On or about the 2nd week of December 1988, the President and Vice
President of PRCI were scheduled to go out of the country in
connection with the corporation's business. In order not to disrupt
operations in their absence, they pre-signed several checks relating to
the current account with BA. The intention was to insure continuity of
PRCI‘s operations by making available cash/money especially to settle
obligations that might become due.
These checks were entrusted to the accountant with instruction to
make use of the same as the need arose. The internal arrangement
was, in the event there was need to make use of the checks, the
accountant would prepare the corresponding voucher and thereafter
complete the entries on the presigned checks.
Consequently, a John Doe presented to Bank of America a couple of
PRCI‘s checks (Nos. 401116 and 401117) with the indicated value of
P110,000.00 each. It is admitted that these two(2) checks were among
those presigned by PRCI‘s authorized signatories. Both had similar
entries with similar infirmities and irregularities.
On the space where the name of the payee should be indicated (Pay
To The Order Of) the following 2-line entries were instead typewritten:
on the upper line was the word "CASH" while the lower line had the
following typewritten words, viz . : "ONE HUNDRED TEN THOUSAND
PESOS ONLY".
Despite the highly irregular entries on the face of the checks, petitioner
bank, without as much as verifying and/or confirming the legitimacy of
the checks, considering the substantial amount involved and the
obvious infirmity/defect of the checks on their faces, encashed said
checks. A verification process, even by way of a telephone call to PRCI
office, would have taken less than ten (10) minutes. But this was not
done by BA.
The investigation conducted by PRCI yielded the fact that there was no
transaction involving PRCI that calls for the payment of P220,000.00 to
anyone. The checks appeared to have come into the hands of an
employee of PRCI (one Clarita Mesina who was subsequently
criminally charged for qualied theft) who eventually completed
without authority the entries on the pre-signed checks. PRCI
demanded for BA to pay but such demand fell on deaf ears. Hence, a
complaint was filed against BA.
ISSUE:
WON the checks were incomplete and undelivered; and
WON the proximate cause of the wrongful encashment was due to
petitioner's failure to make a verification regarding the said checks in
view of the misplacement of entries on the face of the check
HELD: Yes, the checks were incomplete and undelivered when it
was completed and negotiated without authority. Thus, it will NOT
make a valid contract in the hands of any holder, as against PRCI‘s
signatories whose signatures were placed before delivery. PRCI
therefore, cannot be held liable for the wrongful encashment.
As for BA‘s first two (2) contentions, the Court was not convinced. The
Court said that the presence of the obvious irregularities in each check
should have alerted the petitioner to be cautious before proceeding to
encash them which it did not do.
It is well-settled that banks are engaged in a business impressed with
public interest, and it is their duty to protect in return their many clients
and depositors who transact business with them. They have the
obligation to treat their client's account meticulously and with the
highest degree of care, considering the fiduciary nature of their
relationship. The diligence required of banks, therefore, is more than
that of a good father of a family.
As for petitioner‘s third contention, the petitioner bank would have been
correct if the subject checks were correctly and properly filled out
by the thief and presented to the bank in good order. In that
instance, there would be nothing to give notice to the bank of any
infirmity in the title of the holder of the checks and it could validly
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
presume that there was proper delivery to the holder. The bank could
not be faulted if it encashed the checks under those circumstances.
However, the undisputed facts plainly show that there were
circumstances that should have alerted the bank to the likelihood that
the checks were not properly delivered to the person who encashed
the same.
The Court, however, agrees with BA that PRCI‘s officers' practice of
presigning of blank checks should be deemed seriously negligent
behavior and a highly risky means of purportedly ensuring the efficient
operation of businesses. It should have occurred to respondent's
officers and managers that the pre-signed blank checks could fall into
the wrong hands as they did in this case where the said checks were
stolen from the company accountant to whom the checks were
entrusted.
Nevertheless, even if it is assumed that both parties were guilty of
negligent acts that led to the loss, petitioner bank will still emerge as
the party foremost liable in this case. In instances where both parties
are at fault, this Court has consistently applied the doctrine of last
clear chance in order to assign liability.
Hence, CA‘s decision is affirmed with modification as to the award of
damage.
Ratio:
Where an incomplete instrument has not been delivered and is
completed and negotiated without authority, it will not be a valid
contract in the hands of any holder, as against any person whose
signature was placed thereon before delivery.
REPUBLIC PLANTERS BANK VS CA AND CANLAS
G.R. No. 93073 December 21, 1992
The Court has took judicial notice from the customary procedure of
commercial banks to require their clientele to sign promissory notes
prepared by banks in printed form with BLANK SPACES already filled
up as per agreed terms of the loan. This makes the promissory note a
complete negotiable instrument.
FACTS
Defendant Shozo Yamaguchi and private respondent Fermin were
President/ COO and Treasurer respectively of the Worldwide Garment
Manufacturing Inc. (Worldwide).
By virtue of a resolution, Yamaguchi and Canlas were authorized to
apply for credit facilities with herein petitioner Republic Planters Bank
(RPB/Petitioner) in the forms of EXPORT ADVANCES AND LETTERS
OF CREDIT. RPB then issued 9 promissory notes. In these promissory
notes, it was stated that for the value received, Yamaguchi and Canlas
jointly and severally promised to pay the sum, to which they affixed
their signatures in the margins of the said note. Apparently then,
Worldwide changed its name to Pinch Manufacturing Corp.
On Feb 5, 1982, RPB filed complaint for recovery of sums of money
covered by the 9 promissory notes. The complaint was originally
brought against Worldwide, but was substituted by Pinch
Manufacturing Corp. Only Canlas filed his Answer wherein he denied
having issued the promissory notes in question, since according to
him, he was not an officer of the Pinch Manufacturing Corporation, but
instead of Worldwide, and that he issued the notes in behalf of
Worldwide.
LOWER COURT’S RULING
RTC: Judgment rendered in favor of RPB, ordering defendant Canlas
et al to pay the sums.
CA: Affirmed RTC‘s decision.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
Only defendant Canlas appealed to CA, his contention was that he
should not be held personally liable for such authorized corporate acts
that he performed.
ISSUE: W/N the promissory notes delivered to Canlas were in blank
and is thus, an incomplete negotiable instrument.
HELD: NO.
The promissory notes were not in blank. Thus, they are complete
negotiable instruments. Further examination revealed that the notes
in question show what they are the stereotype printed form of
promissory notes used in commercial banking institutions in obtaining
loans.
To absolve himself from liability, Canlas averred that the note is blank,
thus an incomplete negotiable instrument. He cited Sec 14 of the NIL:
An incomplete instrument delivered to the borrower for his signature is
governed by Sec 14 of the NIL, which provides,
Sec 14: Blanks: when may be filled— Where the
instrument is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it
by filling up the blanks therein. … In order, however, that any
such instrument when completed may be enforced against
any person who became a party thereto prior to its
completion, it must be filed up strictly in accordance with the
authority given and within a reasonable time…
Were the notes incomplete? As such, is Sec 14 of NIL applicable?
No, the notes were complete negotiable instruments. Thus, Sec
14 is also not applicable. Canlas‘ allegation that he signed the notes
in blank was self-serving.
Therefore, the SC chose to believe the bank‘s testimony that the notes
were already filled up before they were given to Canlas and
Yamaguchi. For signing the notes above their names, they bound
themselves as unconditional makers. The Court has took judicial notice
from the customary procedure of commercial banks to require
their clientele to sign promissory notes prepared by banks in
printed form with blank spaces already filled up as per agreed terms
of the loan.
RATIO: RE TOPIC
When the notes were given to private respondents, the notes were
complete in the sense that the spaces for the material particulars has
already been filled up. The notes were not incomplete instruments,
neither were they given to Canlas in blank, as he claims. Thus,
Sec 14 of the NIL is inapplicable.
SC’s Disposition: The decision of the CA absolving Canlas from
liability is reversed and set aside. Canlas is declared to be jointly and
severally liable on all 9 promissory notes.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
M.
EFFECT OF DELIVERY OF
INCOMPLETE INSTRUMENTS
Sec. 15. Incomplete instrument not delivered. — Where an
incomplete instrument has not been delivered it will not, if completed
and negotiated, without authority, be a valid contract in the hands of
any holder, as against any person whose signature was placed
thereon before delivery.
Rules where instrument is incomplete and undelivered
(1) Defense even against a holder in due course. — The fact that an
incomplete instrument, completed without authority, has not been
delivered, is a defense even against a holder in due course.
Example: Suppose M makes a note for PI, 000.00 with the name of
the payee in blank and keeps it in his drawer. P steals the note and
inserts his name as payee and then indorses the note to A, A to B, B to
C, and C to D, a holder in due course. (Sec. 52.)
Can D enforce the note against M?
No, because the law is specific that the instrument is not a valid
contract in the hands of any holder. As the signature of M was placed
thereon before delivery, he does not assume any responsibility
whatsoever.
What defense exists? In this case, a real defense exists, (see Sec.
58.) The instrument may be considered a forgery insofar as M is
concerned (see Sec. 23.) since both the two steps in the execution of a
negotiable instrument are not complied with.
There is, however, a prima facie presumption of delivery, which M
must rebut by proof to the contrary. Under certain circumstances,
negligence on the part of M may render him liable to a holder in due
course.
2. Defense available to parties prior to delivery.—The invalidity of
the above instrument is only with reference to the parties whose
signatures appear on the instrument before, and not after delivery.
EXAMPLE: In the same example, the instrument can be enforced
against P, A, B, and C because, as indorsers, they warrant that the
instrument is genuine and in all respects what it purports to be, etc.
(see Sees. 65-66.) As their signatures appear on the instrument after
delivery, the instrument is valid as to them. In the case of P, he is liable
not merely because he is an indorser but also because he is the one
responsible for the theft, and the completion and negotiation of the
instrument.
SECTION 16. Delivery; When Effectual; When Presumed. — Every
contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto. As
between immediate parties, and as regards a remote party other than
a holder in due course, the delivery, in order to be effectual, must be
made either by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and in such case the
delivery may be shown to have been conditional, or for a special
purpose only, and not for the purpose of transferring the property in the
instrument. But where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him so as to make
them liable to him is conclusively presumed. And where the instrument
is no longer in the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed until the
contrary is proved.
Rules where instrument mechanically complete
1. Undelivered: Every instrument, even if it is completely written, is
incomplete and revocable until its delivery for the purpose of giving it
effect.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
Without the initial delivery of the instrument, there can be no
liability thereon. Moreover, such delivery must be intended to give
effect to the instrument.
What is delivery?
It means the transfer of possession, actual or constructive, from one
person to another with intent to transfer title thereto.
What is ‘Issue’?: defined as the first delivery of the instrument,
complete in from, to a person who takes it as holder.
Example:
M makes a note payable to the order of P and keeps it in his drawer. In
the absence of delivery, the instrument, though complete in all its
particulars, there is no contract. M does not assume any liability. P
does not acquire any right against M who may revoke, cancel or tear it
up with or without any reason.
2. Delivered. — The place where the instrument was written, signed,
or dated does not necessarily fix or determine the place where it was
executed. What is of decisive importance is the delivery thereof. The
delivery of the instrument is the final act essential to its consummation
as an obligation.
3. In possession of party other than a holder in due course.— If a
complete instrument is found in the possession of an immediate party
or a remote party other than a holder in due course, there is a prima
facie presumption of delivery but subject to rebuttal.
TN: An undelivered instrument is inoperative because delivery is a
prerequisite to liability.
(Presumption of Delivery)
However, if the 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.
Immediate Parties vs Remote Parties
Immediate Parties Remote parties
It "refers to those who are Remote parties are parties who
'immediate' in the sense of having are not in direct contractual
or being held to know of the relation to each other. But if they
conditions or limitations placed are knowledgeable of any
upon the delivery of the infirmity in the instrument, they
instrument." In other words, it are considered immediate parties
contemplates privity, not for the purposes of Sec 16.
proximity.
Example:
M makes a note payable to the order of P and keeps it in his drawer. P
steals the note and indorses it to A. A to B, B to C, and C to D. D has
knowledge that P stole the note.
Who are immediate parties?
P and D. D is an immediate party, although he is physically remote
from M because D is not a HDC.
What can M do?
As against P and D, M can prove that no delivery was made or it was
unauthorized.
Can D recover from A, B, C?
Yes, as they are indorsers.
What if M delivers the note to X, his agent, with the instruction to
deliver it to P for safekeeping? (deposit)
If X does not tell P that it is only for safekeeping, P can enforce the
note as he is not an immediate party.
(4) Delivered conditionally or for a special purpose. — If delivery
was made or authorized, it may be shown to have been conditional, or
for a special purpose only, and not for t
he purpose of transferring the property (title) to the instrument.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
Upon delivery, there is a presumption that there is an intention to
transfer ownership of the instrument to the payee. However, it may be
shown between immediate parties that the delivery was conditional or
for a special purpose only.
Illustration: M delivers the note to P on condition that it will not be
binding on him until a co-maker has been procured, or for safekeeping,
or for collection only. Here, P cannot enforce the instrument against M
because the latter can set up the defense that the delivery was
conditional or for a special purpose only and not for the purpose of
transferring title to the instrument.
5. In the hands of a holder in due course.—If a complete instrument
is in the hands of a holder in due course, a valid delivery thereof by all
parties prior to him is conclusively presumed.
What is a conclusive presumption? it admits of no evidence to the
contrary.
It would seem that this conclusive presumption exists as well when the
instruments taken from a thief as in any other case. It falls within the
general principle that when one of two persons must suffer by the acts
of a third, he who has enabled such third person to occasion the loss
must bear it. This is a principle of manifest justice where it is confined
to cases where the party who is made to suffer the loss has reposed
confidence in the third person whose acts have occasioned the loss.
DE LA VICTORIA vs. BURGOS and SESBRENO
G.R. No. 111190 June 27, 1995
[FACTS]
Sesbreno filed a complaint for damages against Fiscals Mabanto, Jr.,
and Rama, Jr., before the RTC.
After trial, judgment was rendered ordering Mabanto to pay
P11,000.00 to Sesbreno. This order was questioned by the defendants
before the CA.
However, a writ of execution was issued.
A notice of garnishment was served on petitioner Loreto D. de la
Victoria as City Fiscal of where defendant Mabanto, Jr., was then
detailed.
The notice directed petitioner not to disburse, transfer, release or
convey to any other person except to the deputy sheriff concerned the
salary checks belonging to Mabanto, Jr., under penalty of law.
The petition questioning the order to pay the damages pending before
the CA was dismissed.
Thus the trial court, directed De la Victoria to submit his report showing
the amount of the garnished salaries of Mabanto, Jr., within 15 days
from receipt. He failed to do so.
Thus, Sesbreno filed a motion to require De la Victoria to explain why
he should not be cited in contempt of court for failing to comply with the
order.
De la Victoria moved to quash the notice of garnishment claiming that
he was not in possession of anything of value belonging to Mabanto,
Jr., except his salary and RATA checks, but that said checks were
not yet properties of Mabanto, Jr., until delivered to him, as such,
they were still public funds which could not be subject to garnishment.
[LOWER COURT’S RULING]
The trial court denied both motions and ordered petitioner to
immediately comply with its order. It opined that the checks of
Mabanto, Jr., had already been released through De la Victoria by the
Department of Justice duly signed by the officer concerned. Upon
service of the writ of garnishment, De la Victoria, as custodian of the
checks was under obligation to hold them for the judgment creditor.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
[ISSUES]
(1) whether a check still in the hands of the maker or its duly
authorized representative is owned by the payee before physical
delivery to the latter
(2) whether the salary check of a government official or employee
funded with public funds can be subject to garnishment.
[HELD]
Garnishment is considered as a species of attachment for reaching
credits belonging to the judgment debtor owing to him from a stranger
to the litigation.
Under Sec. 16 of the Negotiable Instruments Law, every contract on a
negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As ordinarily
understood, delivery means the transfer of the possession of the
instrument by the maker or drawer with intent to transfer title to the
payee and recognize him as the holder thereof.
According to the trial court, the checks of Mabanto, Jr., were already
released by the Department of Justice duly signed by the officer
concerned through petitioner and upon service of the writ of
garnishment by the sheriff petitioner was under obligation to hold them
for the judgment creditor.
It recognized the role of De la Victoria as custodian of the checks. At
the same time however it considered the checks as no longer
government funds and presumed delivered to the payee based on the
last sentence of Sec. 16 of the Negotiable Instruments Law which
states: "And where the instrument is no longer in the possession of a
party whose signature appears thereon, a valid and intentional delivery
by him is presumed."
Yet, the presumption is not conclusive because the last portion of the
provision says "until the contrary is proved." However this phrase was
deleted by the trial court for no apparent reason. Proof to the contrary
is its own finding that the checks were in the custody of petitioner.
Inasmuch as said checks had not yet been delivered to Mabanto,
Jr., they did not belong to him and still had the character of public
funds.
The trial court exceeded its jurisdiction in issuing the notice of
garnishment concerning the salary checks of Mabanto, Jr., in the
possession of petitioner.
The notice of garnishment served on petitioner is ordered
DISCHARGED.
DBP VS WEI
GR NO. 85419 March 9, 1993
FACTS: In consideration for a loan extended by petitioner Bank to
respondent Sima Wei, the latter executed and delivered to the former a
promissory note, engaging to pay the petitioner Bank or order the
amount of P1,820,000.00 with interest at 32% per annum.
Sima Wei made partial payments on the note, leaving a balance of
P1,032,450.02.
Sima Wei issued two crossed checks payable to petitioner Bank
drawn against China Banking Corporation for the amount of
P550,000.00 and of P500,000.00. The said checks were allegedly
issued in full settlement of the drawer's account evidenced by the
promissory note.
These two checks were not delivered to the petitioner-payee 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 the
petitioner-payee's indorsement (forged or otherwise) to the account
of respondent Plastic Corporation, at the Balintawak branch,
Caloocan City, of the Producers Bank.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
Cheng Uy, Branch Manager of the Balintawak Branch of Producers
Bank, 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 the account of said Plastic
Corporation, inspite of the fact that the checks were crossed and
payable to petitioner Bank and bore no indorsement of the latter.
Hence, petitioner filed the complaint for a sum of money against
respondents on two causes of action:
(1) To enforce payment of the balance of P1,032,450.02 on a
promissory note executed by respondent Sima Wei on June
9, 1983; and
(2) To enforce payment of two checks executed by Sima Wei,
payable to petitioner, and drawn against the China Banking
Corporation, to pay the balance due on the promissory note.
The trial court granted the defendants' Motions to Dismiss. The Court
of Appeals affirmed this decision.
Hence, this petition.
ISSUE: whether petitioner Bank has a cause of action against any or
all of the defendants, in the alternative or otherwise.
RULING: NO.
A cause of action is defined as an act or omission of one party in
violation of the legal right or rights of another. The essential
elements are: (1) legal right of the plaintiff; (2) correlative obligation
of the defendant; and (3) an act or omission of the defendant in
violation of said legal right.
The normal parties to a check are the drawer, the payee and the
drawee bank. Courts have long recognized the business custom of
using printed checks where blanks are provided for the date of
issuance, the name of the payee, the amount payable and the
drawer's signature. All the drawer has to do when he wishes to issue
a check is to properly fill up the blanks and sign it.
However, 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
delivered to the payee in order to evidence its existence as a
binding contract.
However, it does not necessarily follow that the drawer Sima Wei is
freed from liability to petitioner Bank under the loan evidenced by
the promissory note agreed to by her. Her allegation that she has
paid the balance of her loan with the two checks payable to
petitioner Bank has no merit for these checks were never
delivered to petitioner Bank. And even granting, without
admitting, that there was delivery to petitioner Bank, the delivery of
checks in payment of an obligation does not constitute payment
unless they are cashed or their value is impaired through the fault of
the creditor. None of these exceptions were alleged by respondent
Sima Wei.Therefore, unless respondent Sima Wei proves that she
has been relieved from liability on the promissory note by some
other cause, petitioner Bank has a right of action against her for the
balance due thereon.
However, insofar as the other respondents are concerned, petitioner
Bank has no privity with them. Since petitioner Bank never
received the checks on which it based its action against said
respondents, it never owned the checks, nor did it acquire any
interest therein. Thus, anything which the respondents may have
done with respect to said checks could not have prejudiced
petitioner Bank. It had no right or interest in the checks which could
have been violated by said respondents.
Petitioner Bank has therefore no cause of action against said
respondents, in the alternative or otherwise. If at all, it is Sima Wei,
the drawer, who would have a cause of action against her co-
respondents, if the allegations in the complaint are found to be true.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
Petitioner has cause of action for her balance due to
respondent Sima Wei alone but petitioner has no cause of
action to the other respondents since petitioner never received
the checks on which the action is based.
LIM VS CA
G.R. No. 107898 December 19, 1995
TOPIC FROM THE SYLLABUS: EFFECT OF DELIVERY OF
INCOMPLETE INSTRUMENTS
The place where the bills were written, signed, or dated does not
necessarily fix or determine the place where they were executed. What
is of decisive importance is the delivery thereof. The delivery of the
instrument is the final act essential to its consummation as an
obligation.
An undelivered bill or note is inoperative. Until delivery, the contract
is revocable. And the issuance as well as the delivery of the check
must be to a person who takes it as a holder, which means
"the payee or indorsee of a bill or note, who is in possession of it, or
the bearer thereof."
Delivery of the check signifies transfer of possession, whether actual or
constructive, from one person to another with intent to transfer
title thereto.
FACTS:
Spouses Manuel and Rosita Lim, were charged before the RTC
Malabon with 3 counts of estafa. The information alleged that the
spouses, conspiring together, purchased goods (mild steel plates) from
Linton Commercial Company Inc (Linton) with deceit and issued seven
(7) Consolidated Bank and Trust Co. (Solidbank) checks
simultaneously with the delivery as payment therefor. When presented
to RCBC, the drawee bank, the checks were dishonored. Despite
repeated notice and demand to Lim spouses, they failed to pay the
checks.
Manuel Lim admitted having issued the seven (7) checks in question to
pay for deliveries made by LINTON but denied that his company's
account had insufficient funds to cover the amounts of the checks. He
presented the bank ledger showing a balance of P65,752.75. Also, he
claimed that he ordered SOLIDBANK to stop payment because the
supplies delivered by LINTON were not in accordance with the
specifications in the purchase orders.
TC: Declared spouses guilty of Estafa and violation of BP 22.
Sentenced both accused.
CA: Acquitted accused of estafa, checks were not made in payment
of an obligation contracted at the time of their issuance; but affirmed
TC’s ruling on accused’s guilt on violation of BP 22.
Before the SC, accused imputed the ff errors:
1. The RTC had no jurisdiction
2. They could not be liable for violation of BP 22 as they issued
the checks weeks after the deliveries of the goods; and
3. Neither could they be held liable for violating B.P. Blg. 22 as
they ordered payment of the checks to be stopped because
the goods delivered were not those specified by them,
besides they had sufficient funds to pay the checks.
ISSUE: W/N TC Malabon has jurisdiction to try the BPP 22 case
HELD: Yes.
Section 1, par. 1, of B.P. Blg. 22 punishes the issuing of a worthless
check. Thus, a fundamental element is knowledge on the part of the
drawer of the insufficiency of his funds in or credit with the drawee
bank for the payment of such check in full upon presentment. It is
settled that venue in criminal cases is a vital ingredient of jurisdiction.
In determining the venue, the following acts essential to each crime is
considered: the seven checks were issued to Linton at its place of
business in Navotas; they were delivered to Linton at the same place;
they were dishonored at Kalookan City; and petitioners had
knowledge of the insufficiency of funds.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
These are the SO-CALLED TRANSITORY OR CONTINUING
CRIMES under which violation of B.P. Blg. 22 is categorized. In other
words, a person charged with a transitory crime may be validly tried in
any municipality or territory where the offense was in part committed.
Consequently, venue or jurisdiction lies either in the Regional
Trial Court of Kalookan City or Malabon.
RATIO RE: TOPIC
Under Sec 191 of the NIL, the term ―issue‖ means the first delivery of
the instrument complete in form to a person who takes it as a holder.
The term holder, on the other hand, refers to the payee or indorsee of
a bill or note who is in possession of it.
Citing People vs Yabut:
The place where the bills were written, signed, or dated does not
necessarily fix or determine the place where they were executed. What
is of decisive importance is the delivery thereof.
The delivery of the instrument is the final act essential to
its consummation as an obligation. An undelivered bill or note is
inoperative. Until delivery, the contract is revocable. And the issuance
as well as the delivery of the check must be to a person who takes it as
a holder, which means "(t)he payee or indorsee of a bill or note, who is
in possession of it, or the bearer thereof."
Delivery of the check signifies transfer of possession, whether actual or
constructive, from one person to another with intent to transfer
title thereto.
Although Linton sent a collector who received the checks from
petitioners in Kalookan, they were actually issued and delivered to
Linton at its place of business in Navotas. The receipt of the checks
by the collector of Linton is not the issuance and delivery to the payee
in contemplation of law. The collector was not the person who could
take the checks as a holder, i.e., as a payee or indorsee thereof, with
the intent to transfer title thereto.
We therefore sustain likewise the conviction of petitioners by the
Regional Trial Court of Malabon for violation of B.P. Blg. 22
Section 3 of B.P. Blg. 22 provides that "notwithstanding receipt of an
order to stop payment, the drawee bank shall state in the notice of
dishonor that there were no sufficient funds in or credit with such bank
for the payment in full of the check, if such be the fact. The notice of
dishonor issued by the drawee bank, indicates not only that payment of
the check was stopped but also that the reason for such order was that
the maker or drawer did not have sufficient funds with which to cover
the checks.
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MIDTERMS: NEGOTIABLE INSTRUMENTS Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon

N.
FORGERY AND MATERIAL ALTERATION Examples:
1. I make a promissory note payable to my own order, wherein I forged
M‘s signature as maker. When I attempt to indorse the forged
Sec. 23. Forged signature; effect of.—When a signature is forged or
signature to A, the latter asks M, ―Hey, Joe indorsed me this note, and
made without authority of the person whose signature it purports to be,
your signature is here as maker. Is this genuine?‖, to which, M replied:
it is wholly inoperative, and no right to retain the instrument, or to give
―Yeah, it‘s all right.‖
a discharge therefor, or to enforce payment thereof against any party
thereto, can be acquired through or under such signature, unless the
Here, we have a case of estoppel arising from declaration, where M
party against whom it is sought to enforce such right is precluded from
is already precluded from setting up that his signature was a forgery.
setting up the forgery or want of authority.
"He who is silent when conscience requires him to speak shall be
Forgery explained. debarred from speaking when conscience requires him to be silent."
By forgery is meant the counterfeit-making or fraudulent alteration of a (Tobias v. Morris)
writing, and may consist in the signing of another's name or the
alteration of an instrument in the name, amount, description of the
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM
person and the like, with intent thereby to defraud.
(MWSS) VS CA
Drawer's negligence facilitated the encashment of forged checks and
Who are the forgers contemplated by Sec 23?
prevented the discovery of the fraud.
1. One who affixes his signature on the instrument, and
does not claim to act as agent and has not authority to
Facts: 23 checks payable to various payees were issued and released
bind the person whose signature he has forged
by MWSS, all of which were paid and cleared by PNB and debited by
2. One who affixes his signature purporting to be an agent
the latter against MWSS‘ account. During the same time, 23 checks
but has no authority to bind the alleged prinicoal.
bearing the same numbers were likewise paid and cleared by PNB and
against MWSS‘ account.
What is the effect of a forged signature?
In both cases, the signature is wholly inoperative and so no right can
Investigation conducted by the NBI shows that the second 23 checks
be acquired. Payment made through such forgery is ineffectual and
were deposited by three (3) fictitious payees and the fraudulent
does not discharge the Instrument.
encashment was an "inside job."
What’s the nature of the defense of forgery?
Issue: Is MWSS barred from setting up the defense of forgery under
It is a real or absolute defense, even against a holder in due course.
Section 23?
Held: Yes, instead of using the official PNB commercial blank checks,
What is the proof of forgery?
MWSS used its own personalized checks, without providing the
Being a mechanism of fraud, it must be proven clearly and
needed security measures. It failed to reconcile the bank statements
convincingly, burden of proving such lies on the party so alleging the
with its own records which failure facilitated the fraudulent
forgery. It cannot be presumed.
encashment. This negligence was the proximate cause of the failure to
discover the fraud.
What about variance of signatures?
It cannot be conclusive proof that the instrument is forged.
2. R is authorized to draw on W (a bank) for any amount not exceeding
What is the extent of forgery? P5,000.00. P makes a bill of exchange payable to his own order for
Sec 23 does not declare the instrument to be wholly void not the P6,000.00 by forging R's signature. P indorsed the bill to A, a holder in
genuine signatures be declared inoperative. It is only the forged or due course, who presented it for payment. After the bill had been
unauthorized signatures that is declared inoperative. Rights may still cleared thru W's clearing office, W paid the bill.
exist and be enforced by virtue of those which are genuine.
INDORSEMENT Can W recover the amount paid to A?
No, because W was guilty of gross negligence considering that the
General Rule: Preservation of rights of prior parties irregularity was apparent on the face of the bill. W is, therefore,
precluded from setting up the question of forgery, (see Republic of the
A forged indorsement prevents any subsequent party from acquiring Phil. v. Equitable Banking Corporation).
any right as against any party whose name appears prior to the
forgery. Such an indorsement cuts off the rights of all subsequent 3. M, maker, P, payee. X indorses the note to A by forging P's
parties as against parties prior to the forgery. signature. A indorses the note to B, B to C, C to D, the present holder.

However, the law makes an exception to these rules where a party is Order Instrument
precluded from setting forgery as a defense. (Gempesaw v. Court of MP
Appeals)
X ABCD
EXCEPTIONS:
Being the present holder in due course, who can D enforce the
note against?
1. If the party is precluded from setting up forgery or want of authority;
D can enforce the note against A, B, and C who are indorsers
subsequent to the forgery. As indorsers, they warrant that the
2. Where the forged signature is not necessary to the holder‘s title in
instrument is genuine and in all respects what it purports to be.
which case the forgery may be disregarded (Sec 48).
Bearer Instrument: Holder cannot claim from MPABC since by mere
―Precluded‖: Synonymous with being estopped.
delivery ra ang bearer.
Two Classes of being ―Precluded‖ by setting up the defense of
Cases of forgery in general.
forgery
(a) Those who by their acts, silence, or negligence, are estopped from
The cases of forgery may be divided as follows:
setting up the defense of forgery; and
(1) Forgery of promissory notes which may be subdivided into:
(b) Those who warrant or admit the genuineness of the signatures in
(a) Forgery of an indorsement on the note; and
question, namely:
(b) Forgery of the maker's signature.
1) indorsers; 2) acceptors; and 3) persons negotiating by delivery.

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MIDTERMS: NEGOTIABLE INSTRUMENTS
(2) Forgery of bills of exchange which may be subdivided into:
(a) Forgery of an indorsement on the bill; and
(b) Forgery of the drawer's signature; either
1) with acceptance by the drawee; or
2) without such acceptance but the bill is paid by
the drawee.
FORGERY 1- Promissory Note
(A.) Forgery of an INDORSEMENT on a promissory note
1. Where note is payable to ORDER
We are aware that where the note is payable to order, there are two
steps required for its negotiation that is: INDORSEMENT by the
payee/holder and its DELIVERY to the next holder.
Thus, in case there is forgery in the note, the party whose indorsement
is forged is not liable to any holder even to a holder in due course.
The indorsement, being forged, is inoperative.
Example:
M makes a note payable to the order of P. P indorses it to A. X obtains
possession of the note fraudulently and indorses it to B, by forging A's
signature. B indorses to C, present holder. Thus, the indorsements are
as follows:
Order Instrument
M P A
| holder in due course.
|
| How about M and P, are they also liable to D?
X B C Yes. The Maker and the parties prior to whose signature was forged
X Obtained the note
fraudulently and
forged A‘s signature- A‘s signature is wholly inoperative.
Can C enforce the instrument against M and P?
No, he cannot enforce the instrument against M and P because C's
rights against them are cut off by the forged signature of A which is
wholly inoperative.
Can C enforce the note against A?
No, since A‘s signature is wholly inoperative. A has no privity with C.
Even if C is a holder in due course?
Yes, since what we have here is an Order instrument, it must have a
valid negotiation thru indorsment and delivery. With the presence of a
forgery during the indorsement, it renders the signature of A to be
wholly inoperative, even against C, who is a holder in due course.
So where can C go against then?
C may go against B whose signature is genuine and therefore,
operative. B warranted to C that the instrument was valid and
subsisting at the time of B‘s indorsement (Sec 65-66).
TN: B or C, of course, C has a right of recourse against X, the forger.
TN: A can recover from M and P because his rights against them were
not affected by the forgery. The signatures of M and P are genuine and
they are liable to A on their contract.
2. Where promissory note is payable to BEARER
If the instrument is payable to bearer, it is negotiated by mere delivery
without indorsement.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
Thus, where the note, mechanically complete, the party whose
indorsement is forged is liable to a holder in due course, but not to one
who is not a holder in due course.
The other parties, including the maker, prior to the party whose
signature is forged, may also be held liable by one who is not a holder
in due course.
The reason is that the instrument being payable to bearer, it can be
negotiated by mere delivery. Indorsement is not necessary to the title
of the holder. Hence, even if the indorsement is forged, the forgery
may be disregarded.
Example
The note is originally a bearer instrument. The note is delivered by M
to P, who indorsed it to A. X forged A‘s signature. B indorses note to
C who, in turn, delivers without indorsment to D, a holder in due
course.
Bearer Instrument
M P A
|
|
|
X B C D
Is the indorsement of P, A, and B, necessary to vest title to D?
No. Being originally payable to bearer, mere delivery is sufficient.
Can A, the one whose signature was forged, be liable to D?
Yes. Even if the indorsement of A was forged, A can be liable to D, a
(A), can be liable.
How about B and C? are they liable to D?
Yes, they are. D can enforce the note agiant B and C who are liable for
their warranties as indorsers.
FORGERY 2- Bills of Exchange
Here, there are now three parties: the drawer, the payee and the
drawee bank.
1. Where BILL is payable to ORDER
Where the bill is payable to order, the party whose indorsement is
forged, is not liable to any holder even a holder in due course. The
forged indorsement is wholly inoperative.
a.) Liability of Collecting Bank
Where the signature of the payee was forged, the collecting bank is
liable to the payee and must bear the loss because it is its legal duty to
ascertain that the payee's endorsement was genuine before cashing
the check.
Example
X forged D‘s signature. X managed to indorse the bill purporting as D,
to P, who indorsed it to A. A indorsed to Collecting Bank (CB). CB in
turn, indorsed to the Drawee Bank (DB). The DB actually gave the
amount to the CB, and debited the amount against D‘s account.
D
|
|
X  P  A  Collecting Bank (CB)  Drawee Bank (DB)
Can the Drawee Bank debit from D?
No. D‘s signature was forged prior to indorsment, thereby rendering it
wholly inoperative.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
Can P be liable to DB?
Yes, P warrants the genuineness of the note.
Can the Collecting Bank be liable?
No. Collecting Bank‘s warranty does not extend to D‘s genuineness as
the drawer, since D is a client of the Drawee Bank.
Can D run for A and B?
Yes. While the drawee-bank may not debit the account of the drawer, it
may generally pass liability back through the collection chain to the
party who took from the forger and, of course, to the forger himself.
As a general rule, a bank or corporation who has obtained possession
of a check upon an unauthorized or forged indorsement of the payee's
signature and who collects the amount of the check from the drawee,
is liable for the proceeds thereof to the payee or other owner,
notwithstanding that the amount has been paid to the person from
whom the check was obtained. (Westmont Bank vs. Ong).
b.) If the drawee pays under a forged indorsement, the drawer is
not liable on the bill and the drawee may not debit the drawer's
account. If it does, it shall have to recredit the amount of the
check to the account of the drawer.
A bank is bound to know the signature of its customers (drawers), and
if it pays a forged check it must be considered as making the payment
out of its own funds and cannot ordinarily charge the amount so paid to
the account of the depositor whose name was forged. (San Carlos
Milling Co., Ltd. vs.BPI. & China Banking Corp.)
c.) However, where the checks are received merely for collection
and deposit, the bank, as agent, cannot be expected to know or
ascertain the genuineness of all prior indorsements (Jai –Alai Corp
vs BPI)
Exception:
But by stamping on checks: "all prior endorsements and /or lack of
endorsements guaranteed," a collecting/presenting bank thereby
makes the assurance that it has ascertained the genuineness of all
prior indorsements. (Associated Bank vs. Court of Appeals.
d.) Collecting bank is liable as an indorser.
So even if the indorsement on the check deposited by the collecting
bank's client is forged, the collecting bank is bound by its warranties as
an indorser and cannot set up the defense of forgery as against the
drawee-bank. (Associated Bank vs. Court of Appeals)
HONGKONG & SHANGHAI BANKING CORPORATION V.
PEOPLE'S BANK & TRUST COMPANY
Drawee bank allowed 27 days to elapse after clearing before notifying
collecting bank as to forgery of payee's name.
Facts: R drew a check on W (a bank) and in favor of P as payee. The
check fell into the hands of A, who erased the name of P and put his
name instead. A deposited the altered check in his name with B (a
bank) which presented the check to W for clearing. The check was
duly cleared by W and A, the forger, was credited the amount of the
check. The alteration was discovered 27 days later and B was notified
on the same day.
Issue: Is B liable to refund the amount of the check?
Held: No. The court, relying on the doctrine announced in Republic of
the Philippines v. Equitable Banking Corporation (supra.), held as
decisive the fact that W allowed 27 days to elapse after clearing before
notifying B as to such alteration. The applicable Central Bank
regulation provides for a 24-hour period only within which the drawee-
bank must return a check to the collecting bank if the check is
defective for any reason.
TN: The remedy of the drawee bank is against the party responsible
for the alteration. It is true that when an indorsement is forged, the
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
collecting bank or last indorser, as a general rule, bears the loss, but
the unqualified indorsement of the collecting bank on the check should
be read together with the 24-hour regulation on clearing house
operations. Once that 24-hour period is over, the liability of the
collecting bank in such an indorsement has ceased. (Metropolitan
Bank & Trust Co. v. the First National City Bank).
In the case of BDO Savings and Mortgage Bank vs. Equitable Banking
Corporation (the clearing regulation (this is the present clearing
regulation) at the time the parties' dispute occurred was as follows:
"Sec. 21. xxx xxx xxx Items which have been the subject of material
alteration or items bearing forged endorsement when such
endorsement is necessary for negotiation shall be returned by direct
presentation or demand to the Presenting Bank and not through the
regular clearing house facilities within the period prescribed by law for
the filing of a legal action by the returning bank/branch, institution or
entity sending the same."
The above-cited clearing regulations are substantially the same in that
it allows a return of a check "bearing forged endorsement when such
endorsement is necessary for negotiation" even beyond the next
regular clearing although not beyond the prescriptive period "for the
filing of a legal action by the returning bank."
e.) Drawee Bank can recover from Collecting Bank
The collecting bank has privity with its depositors who are its clients.
Furthermore, it is also in a better position to detect forgery, fraud or
irregularity in the indorsement. If the drawee-bank discovers that the
signature of the payee was forged after it has cleared the check and
paid the amount of the check to the holder thereof, it can recover the
amount paid from the collecting bank (Republic Bank vs. Ebrada).
What if the collecting bank was not negligent in ascertaining
genuineness?
Even if the collecting bank was not negligent, it would still be liable to
the drawee-bank because of its indorsement. The drawee-bank is not
similarly situated as the collecting bank because the former makes no
warranty as to the genuineness of any indorsement. Its duty is but to
verify the genuineness of the drawer's signature and not of the
indorsement because the drawer is its client.
2. When the bill is payable to BEARER
In case the bill is originally payable to bearer, the drawee may debit the
drawer's account in spite of the forged indorsement. The reason is that
the forged indorsement is not necessary to the title of the holder. The
drawee cannot recover from the holder.
Example:
Supposing that the check drawn by the insurance company is originally
a bearer one, H & S bank may charge the amount thereof to the
account of the insurance company. In this case, the drawee (H & S
bank) would not be able to recover from the holder (P.N. bank) of the
bearer bill since the forged indorsement of P by X did not prevent the
transfer of title.
The remedy of the drawer insurance company is against X, the forger.
Of course, P, the payee, is not bound not having received the amount
of the check and not having indorsed the same.
It must be remembered that all the foregoing are qualified in those
cases where there is estoppel against the party desiring to set up the
defense of forgery.
Right of drawee bank (DB) to recover payment where payee’s
signature was forged
1. Recover from last indorser- DB is not supposed to check the
signature of the indorsers w/n they are genuine. Bc the indorsee is
supposed to warrant the signatures of the payee are genuine.
However, the said warranty only extends to a holder in due course.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
The recovery is permitted because although the drawee bank was in a
way negligent in failing to detect the forgery, yet, if the encasher of the
check had performed his duty, the forgery would, in all probability,
have been detected and the fraud defeated.
2. Drawee bank can collect from drawer or depositor: A
The General Rule is that, the drawee bank who has paid a check on
which the indorsement has been forged cannot debit or charge the
drawer‘s account. The risk of loss is on the DB.
But an exception is enshrined in Associated Bank, where the
DRAWER (principal, who entrusted the agent) is guilty of negligence
which caused the bank to honor such a check. Also, Gempesaw,
where petitionere trusted her secretary, Galang to issue 82 checks.
The negligence of petitioner facilitated the fraud.
If at the same time the drawee bank was also negligent to the point of
substantially contributing to the loss, then such loss from the forgery
can be apportioned between the drawer and the drawee.
Illustrative Cases from the Book
ILLUSORIO VS CA
Depositor entrusted to his secretary who was able to encash and
deposit to her personal account several checks against account of the
depositor, his credit cards and check books with blank check.
Facts:
Petitioner Illusorio was a depositor of good standing of respondent
bank, MBC. He entrusted to his secretary, KE, his credit cards and
check books with blank checks. However, KE was able to encash and
deposit to her personal account 17 checks drawn against Illusorio‘s
account at MBC Bank. Illusorio didn‘t bother checking his statement of
account until someone apprised him he saw KE use Illusorio‘s credit
cards. As such, Illusorio requested MBC to restore to his account the
value of the checks wrongfully encashed but MBC refused.
Issue: Is MBC liable for damages for its negligence in failing to detect
the discrepant checks?
Held:
1. Petitioner has the burden of proving negligence on the part of
the bank for failure to detect the discrepancy in the signatures on the
checks, but he didn‘t submit one to the NBI.
2. MBC employees exercised due diligence. The bank's employees
in the present case did not have a hint as to Eugenio's [KE's] modus
operandi because she was a regular customer of the bank, having
been designated by petitioner himself to transact in his behalf.
3. It was Illusorio who was negligent, he accorded his secretary
unusual degree of trust and unrestricted access to his credit cards.
4. Petitioner failed to examine his bank statements. — "Petitioner's
failure to examine his bank statements appears as the proximate
cause of his own damage. In view of Article 2179 of the New Civil
Code, when the plaintiff's own negligence was the immediate and
proximate cause of his injury, no recovery could be had for damages."
5. Petitioner precluded from setting up forgery. — "The rule [in
Section 23] does provide for an exception, namely: 'unless the party
against whom it is sought to enforce such right is precluded from
setting up the forgery or want of authority.' In the instant case, it is the
exception that applies. In our view, petitioner 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."
6. Fact of forgery not proved- both courts below uniformly found that
Manila Bank's personnel diligently performed their duties, having
compared the signature in the checks from the specimen signatures on
record and satisfied themselves that it was petitioner's.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
Cases from the Syllabus
ALLIED BANKING CORPORATION vs.
LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., &
PRODUCERS BANK
| G.R. No. 133179 | March 27, 2008
Sec. 23. Forged signature; effect of.—When a signature is forged or
made without 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.
FACTS:
Respondent Lim deposited with petitioner bank (Allied) a money
market placement for a term of 31 days to mature on December 15,
1983 as evidenced by Provisional Receipt No. 1356 dated November
14, 1983.
On December 5, 1983, a person claiming to be respondent Lim Sio
Wan called up Cristina So, an officer of Allied, and instructed the latter
to pre-terminateher money market placement and to give the check to
one Deborah Dee Santos. Lim Sio Wan allegedly described the
appearance of Santos so that Cristina So could easily identify her
when she picks up the check.
Consequently, Santos arrived at the bank and signed the application
form for a manager‘s check to be issued. The bank then issued a
manager‘s check representing the proceeds of Lim Sio Wan‘s money
market placement in the name of Lim Sio Wan as payee. It was cross-
checked ―For Payee’s Account Only‖ and was given to Santos.
Thereafter, the manager's check was deposited in the account of
Filipinas Cement Corporation (FCC) at respondent Metropolitan Bank
and Trust Co. (Metrobank), with the forged signature of Lim Sio
Wan as indorser.
On September 21, 1983, before all of the foregoing happened, FCC
had earlier deposited a money market placement for PhP2 million with
respondent Producers Bank. Deborah Dee Santos, who was
working for Producers Bank, was the money market trader
assigned to handle FCC's account. Such deposit is evidenced by
Official Receipt No. 317568 and a Letter dated September 21, 1983 of
Santos addressed to Angie Lazoof FCC, acknowledging receipt of the
placement.
The placement matured on October 25, 1983 and was rolled-over until
December 5, 1983 as evidenced by a Letter dated October 25, 1983.
When the placement matured, FCC demanded the payment of the
proceeds of the placement. On December 5, 1983, the same date that
Cristina So received the phone call instructing her to pre-terminate Lim
Sio Wan's placement, the manager's check in the name of Lim Sio
Wan was deposited in the account of FCC, purportedly representing
the proceeds of FCC's money market placement with Producers
Bank.In other words, the Allied check was deposited with
Metrobank in the account of FCC as Producers Bank's payment of
its obligation to FCC.
To clear the check and in compliance with the requirements of the
Philippine Clearing House Corporation (PCHC) Rules and Regulations,
Metrobank stamped a guaranty on the check, which reads: "All prior
endorsements and/or lack of endorsement guaranteed."
The check was sent to Allied through the PCHC. Upon the
presentment of the check, Allied funded the check even without
checking the authenticity of Lim Sio Wan's purported
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MIDTERMS: NEGOTIABLE INSTRUMENTS
indorsement. Thus, the amount on the face of the check was credited
to the account of FCC.
Lim Sio Wan initially filed a complaint against Allied for the recovery of
the proceeds of her money market placement. She then subsequently
amended the complaint to include Metrobank. Thus, Allied‘s complaint
against Metrobank was converted into a cross-claim. Metrobank for its
part, filed a third-party complaint against FCC, who in turn filed a
fourth-party complaint against Producers Bank.
LOWER COURTS’ RULING
RTC – Ordered Allied to pay Lim Sio Wan the amount representing the
money market placement plus 12% interest per annum from March 16,
1984 until fully paid. RTC also ordered Allied to pay moral damages,
attorney‘s fees and to pay the costs of suit. It then DISMISSED the
cross-claim, 3rd party and 4th party complaint.
CA – MODIFIED RTC‘s decision and ordered Allied to pay 60%, and
the remaining 40% by Metrobank plus 12% interest per annum from
March 16, 1984 until fully paid.The moral damages, attorney's fees and
costs of suit adjudged shall likewise be paid by defendant-appellant
Allied Banking Corporation and defendant-appellee Metropolitan Bank
and Trust Company in the same proportion of 60-40.
ISSUE: WON CA erred in holding Allied liable to the extent of 60% of
amount adjudged demandable in clear disregard to the ultimate liability
of Metrobank as guarantor of all indorsement on the check, including a
forged indorsement, it being the collecting bank
HELD: No. The CA was correct in holding Allied liable to the extent of
60% and Metreobank, 40% of the amount adjuged demandable.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law
provides:
Section 66. Liability of general indorser . — Every indorser who
indorses without qualification, warrants to all subsequent holders in
due course;
a) The matters and things mentioned in subdivisions (a), (b) and (c) of
the next preceding section; and
b) That the instrument is at the time of his indorsement valid and
subsisting;
And in addition, he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be according to its tenor,
and that if it be dishonored, and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder, or
to any subsequent indorser who may be compelled to pay it.
Section 65. Warranty where negotiation by delivery, so fourth. — Every
person negotiating an instrument by delivery or by a qualified
indorsement, warrants:
a) That the instrument is genuine and in all respects what it
purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in
favor of no holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to
persons negotiating public or corporation securities, other than bills
and notes.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
The warranty "that the instrument is genuine and in all respects what it
purports to be" covers all the defects in the instrument affecting the
validity thereof, including a forged indorsement. Thus, the last
indorser will be liable for the amount indicated in the negotiable
instrument even if a previous indorsement was forged. The Court held
in a line of cases that "a collecting bank which indorses a check
bearing a forged indorsement and presents it to the drawee bank
guarantees all prior indorsements, including the forged indorsement
itself, and ultimately should be held liable therefor."
HOWEVER, this general rule is subject to exceptions. One such
exception is when the issuance of the check itself was attended
with negligence. Thus, in some of the cases decided by the SC,
where the collecting bank is generally held liable, in cases where the
checks were negligently issued, the Court held the institution issuing
the check just as or more liable than the collecting bank.
In the instant case, the trial court correctly found Allied negligent in
issuing the manager's check and in transmitting it to Santos without
even a written authorization. In fact, Allied did not even ask for the
certificate evidencing the money market placement or call up Lim Sio
Wan at her residence or office to confirm her instructions. Both actions
could have prevented the whole fraudulent transaction from unfolding.
Allied's negligence must be considered as the proximate cause of the
resulting loss.
To reiterate, had Allied exercised the diligence due from a financial
institution, the check would not have been issued and no loss of funds
would have resulted. In fact, there would have been no issuance of
indorsement had there been no check in the first place.
The liability of Allied, however, is concurrent with that of Metrobank as
the last indorser of the check. When Metrobank indorsed the check in
compliance with the PCHC Rules and Regulationswithout verifying
the authenticity of Lim Sio Wan's indorsement and when it
accepted the check despite the fact that it was cross-checked
payable to payee's account only, its negligent and cavalier
indorsement contributed to the easier release of Lim Sio Wan's money
and perpetuation of the fraud. Given the relative participation of Allied
and Metrobank to the instant case, both banks cannot be adjudged as
equally liable. Hence, the 60:40 ratio of the liabilities of Allied and
Metrobank, as ruled by the CA, must be upheld.
FCC, having no participation in the negotiation of the check and in the
forgery of Lim Sio Wan's indorsement, can raise the real defense of
forgery as against both banks.
Petition is PARTLY GRANTED. RTC decision affirmed with
Modification (Producers Bank is hereby ordered to pay Allied and
Metrobank the aforementioned amounts. The liabilities of the parties
are concurrent and independent of each other).
BPI v. CA
| G.R. No. 102383 | November 26, 1992
Forgery and Material Alteration
Items which have been the subject of material alteration or items
bearing forged endorsement when such endorsement is necessary for
negotiation shall be returned by direct presentation or demand to the
Presenting Bank and not through the regular clearing house facilities
within the period prescribed by law for the filing of a legal action by the
returning bank/branch, institution or entity sending the same.
FACTS:
On October 9, 1981, Eligia G. Fernando who had a money market
placement as evidenced by a promissory note with a maturity date of
November 11, 1981 and a maturity value of P2,462,243.19 called BPI‘s
Money Market Department. The caller wanted to preterminate the
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MIDTERMS: NEGOTIABLE INSTRUMENTS
placement, but Reginaldo Eustaquio, Dealer Trainee in BPI's Money
Market Department, who received the call and who happened to be
alone in the trading room at the time, told her "trading time" was over
for the day, which was a Friday, and suggested that she call again the
following week. The promissory note the caller wanted to preterminate
was a roll-over of an earlier 50-day money market placement that had
matured on September 24, 1981.Later that afternoon, Eustaquio
conveyed the request for pretermination to the officer who before had
handled Eligia G. Fernando's account, Penelope Bulan, but Eustaquio
was left to attend to the pretermination process.
The next Monday, the caller of the previous Friday followed up
with Eustaquio, merely by phone again, on the pretermination of the
placement. Although not familiar with the voice of the real Eligia G.
Fernando, Eustaquio "made certain" that the caller was the real Eligia
G. Fernando by "verifying" that the details the caller gave about the
placement tallied with the details in "the ledger/folder" of the account.
Eustaquio knew the real Eligia G. Fernando to be the Treasurer of
Philippine American Life Insurance Company (Philamlife) since he was
handling Philamlife's corporate money market account. But neither
Eustaquio nor Bulan who originally handled Fernando's account, nor
anybody else at BPI, bothered to call up Fernando at her Philamlife
office to verify the request for pretermination.
Eustaquio, thus, proceeded to prepare the "purchase order slip"
for the requested pretermination as required by office procedure, and
from his desk, the papers, following the processing route, passed
through the position analyst, securities clerk, verifier clerk and
documentation clerk both payable to Eligia G. Fernando, covering the
preterminated placement.
The same caller changed the delivery instructions; instead of the
checks being delivered to her office at Philamlife, she would herself
pick up the checks or send her niece, Rosemarie Fernando, to pick
them up. Eustaquio then told her that if it were her niece who was
going to get the checks, her niece would have to being a written
authorization from her to pick up the checks. This telephone
conversation ended with the caller's statement that "definitely" it would
be her niece, Rosemarie Fernando, who would pick up the checks.
Thus, Eustaquio had to hurriedly go to the dispatcher, Bernardo
Laderas, to tell him of the new delivery instructions for the checks; in
fact, he changed the delivery instruction on the purchase order slip,
writing thereon "Rosemarie Fernando release only with authority to
pick up.
It was, in fact Rosemarie Fernando who got the two checks from
the dispatcher however, the dispatcher forgot to require the surrender
of the promissory note evidencing the placement. There is also no
showing that Eligia G. Fernando's purported signature on the letter
requesting the pretermination and the latter authorizing Rosemarie
Fernando to pick up the two checks, both of which letters were
presumably handed to the dispatcher by Rosemarie Fernando, was
compared or verified with Eligia G. Fernando's signature in BPI's file.
Such purported signature has been established to be forged although it
has a "close similarity" to the real signature of Eligia G. Fernando.
In the afternoon of October 13, 1981, a woman who represented
herself to be Eligia G. Fernando applied at CBC's Head Office for the
opening of a current account.She was accompanied and introduced to
Emily Sylianco Cuaso, Cash Supervisor, by Antonio Concepcion whom
Cuaso knew to have opened, earlier that year, an account upon the
introduction of Valentin Co, a long-standing "valued client" of CBC.
What Cuaso indicated in the application form, however, was that the
new client was introduced by Valentin Co, and with her initials on the
form signifying her approval, she referred the application to the New
Accounts Section for processing. The following day, October 14, 1981,
the woman holding herself out as Eligia G. Fernando deposited the two
checks in controversy with Current Account No. 126310-3. Her
endorsement on the two checks was found to conform with the
depositor's specimen signature. CBC's guaranty of prior endorsements
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
and/or lack of endorsement was then stamped on the two checks,
which CBC forthwith sent to clearing and which BPI cleared on the
same day.
Days after, the withdrawals began on the Current Account. All
these withdrawals were allowed on the basis of the verification of the
drawer's signature with the specimen signature on file and the
sufficiency of the funds in the account. However, the balance shown in
the computerized teller terminal when a withdrawal is serviced at the
counter, unlike the ledger or usual statement prepared at month-end,
does not show the account's opening date, the amounts and dates of
deposits and withdrawals.
The maturity date of Eligia G. Fernado's money market
placement with BPI came, when the real Eligia G. Fernando went to
BPI for the roll-over of her placement. She disclaimed having
preterminated her placement on October 12, 1981. She executed an
affidavit stating that while she was the payee of the two checks in
controversy, she never received nor endorsed them and that her
purported signature on the back of the checks was not hers but forged.
With her surrender of the original of the promissory noteevidencing the
placement which matured that day, BPI issued her a new promissory
note to evidence a roll-over of the placement.
LOWER COURT’S RULING:
Arbitration Committee- ruled in favor of petitioner BPI and ordered
China Banking Corporation to pay the former the amount of
P1,206,607.58 with interest thereon at 12% per annum
Board of Directors of the PCHC- reversed the Arbitration
Committee's decision
RTC Makati- dismissed the petition but modified the order
CA- affirmed RTC‘s decision
ISSUE: Whether or not BPI can claim reimbursement from CBC which
earlier paid the proceeds of the checks after the same checks were
cleared by petitioner BPI through the PCHC provided that, payee‘s
signature is forged?
HELD:
Petitioner BPI's reliance on the doctrine of last clear chance to
clear it from liability is not well-taken. CBC had no prior notice of the
fraud perpetrated by BPI's employees on the pretermination of Eligia
G. Fernando's money market placement. Moreover, Fernando is not a
depositor of CBC. Hence, a comparison of the signature of Eligia G.
Fernando with that of the impostor Eligia G. Fernando, which
respondent CBC did, could not have resulted in the discovery of the
fraud. Hence, unlike in the Picart case herein the defendant, had he
used reasonable care and caution, would have recognized the risk he
was taking and would have foreseen harm to the horse and the plaintiff
but did not, respondent CBC had no way to discover the fraud at all. In
fact the records fail to show that respondent CBC had knowledge,
actual or implied, of the fraud perpetrated by the impostor and the
employees of BPI.
Applying the doctrine of proximate cause, petitioner BPI's
contention that CBC alone should bear the loss must fail. The gap of
one (1) day between the issuance and delivery of the checks bearing
the impostor's name as payee and the impostor's negotiating the said
forged checks by opening an account and depositing the same with
respondent CBC is not controlling. It is not unnatural or unexpected
that after taking the risk of impersonating Eligia G. Fernando with the
connivance of BPI's employees, the impostor would complete her
deception by encashing the forged checks. There is therefore, greater
reason to rule that the proximate cause of the payment of the forged
checks by an impostor was due to the negligence of petitioner BPI.
This finding, notwithstanding, we are not inclined to rule that petitioner
BPI must solely bear the loss of P2,413,215.16, the total amount of the
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MIDTERMS: NEGOTIABLE INSTRUMENTS
two (2) forged checks. Due care on the part of CBC could have
prevented any loss.
While it is true that petitioner BPI's negligence may have been the
proximate cause of the loss, respondent CBC's negligence contributed
equally to the success of the impostor in encashing the proceeds of the
forged checks. The demands of substantial justice are satisfied by
allocating the loss and the costs of the arbitration proceeding and the
cost of litigation on a 60-40 ratio. Conformably with this ruling, no
interests and attorney's fees can be awarded to either of the
parties.Petitioner Bank of the Philippine Islands shall be responsible for
sixty percent (60%) while respondent China Banking Corporation shall
share forty percent (40%) of the loss
RATIO:
When 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 discharge therefore, or to enforce
payment thereof, against any party thereto, can be acquired through or
under such forged signature, unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or
want of authority.
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM
(MWSS), v. CA
(Found this digest on my files)
FACTS:
MWSS is a government owned and controlled corporation created
under Republic Act No. 6234 as the successor-in- interest of the
defunct NWSA. The Philippine National Bank (PNB for short), on the
other hand, is the depository bank of MWSS and its predecessor-in-
interest NWSA.
Among the several accounts of NWSA with PNB is NWSA Account No.
6. The authorized signature for said Account No. 6 were those of
MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and its
acting General Manager Victor L. Recio. Their respective specimen
signatures were submitted by the MWSS to and on file with the PNB.
By special arrangement with the PNB, the MWSS used personalized
checks in drawing from this account. These checks were printed for
MWSS by its printer, F. Mesina Enterprises. During the months of
March, April and May 1969, twenty-three (23) checks were prepared,
processed, issued and released by NWSA, all of which were paid and
cleared by PNB and debited by PNB against NWSA Account No. 6. ----
--- P 320,636.26 During the same months, 23 checks bearing the
same numbers as the aforementioned NWSA checks were likewise
paid and cleared by PNB and debited against NWSA Account. The
foregoing checks were deposited by the payees Raul Dizon, Arturo
Sison and Antonio Mendoza in their respective current accounts with
the Philippine Commercial and Industrial Bank (PCIB) and Philippine
Bank of Commerce (PBC) in the months of March, April and May 1969.
Thru the Central Bank Clearing, these checks were presented for
payment by PBC and PCIB to the defendant PNB, and paid, also in the
months of March, April and May 1969. At the time of their presentation
to PNB these checks bear the standard indorsement which reads 'all
prior indorsement and/or lack of endorsement guaranteed.'
Subsequent investigation however, conducted by the NBI showed that
Raul Dizon, Arturo Sison and Antonio Mendoza were all fictitious
persons.
NWSA addressed a letter to PNB requesting the immediate restoration
to its Account No. 6, of the total sum of P3,457,903.00 corresponding
to the total amount of these twenty-three (23) checks claimed by
NWSA to be forged and/or spurious checks. PNB refused.
MWSS filed the instant complaint on November 10, 1972 before the
Court of First Instance of Manila.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
PNB contended among others, that the checks in question were
regular on its face in all respects, including the genuineness of the
signatures of authorized NWSA signing officers and there was nothing
on its face that could have aroused any suspicion as to its
genuineness and due execution and; that NWSA was guilty of
negligence which was the proximate cause of the loss.
PNB also filed a third party complaint against the negotiating banks
PBC and PCIB on the ground that they failed to ascertain the Identity
of the payees and their title to the checks which were deposited in the
respective new accounts of the payees with them.
● CFTI rendered a decision in favor of the MWSS.
● However the Court of Appeals reversed the said decision,
and so this instant petition.
ISSUE: W/N MWSS can claim against PNB.
Supreme Court (Decision): NO!
The appellate court applied Section 24 of the Negotiable
Instruments Law which provides: Every negotiable instrument is
deemed prima facie to have been issued for valuable consideration
and every person whose signature appears thereon to have become a
party thereto for value.
The petitioner submits that the above provision does not apply to the
facts of the instant case because the questioned checks were not
those of the MWSS and neither were they drawn by its authorized
signatories. -------- (6) the admission of the respondent bank's witness,
Mr. Faustino Mesina, Jr. that the checks in question were not printed
by his printing press. The petitioner contends that since the signatures
of the checks were forgeries, the respondent drawee bank must bear
the loss under the rulings of this Court.
o A bank is bound to know the signatures of its customers; and if it
pays a forged check it must be considered as making the
payment out of its obligation funds, and cannot ordinarily charge
the amount so paid to the account of the depositor whose name
was forged.
o The signatures to the checks being forged, under Section 23 of
the Negotiable Instruments Law they are not a charge against
plaintiff nor are the checks of any value to the defendant.
o It must therefore be held that the proximate cause of loss was due
to the negligence of the Bank of the Philippine Islands in honoring
and cashing the two forged checks. (San Carlos Milling Co. v.
Bank of the P. I., 59 Phil. 59)
However, we have carefully reviewed the documents cited by the
petitioner. There is no express and categorical finding in these
documents that the twenty-three (23) questioned checks were indeed
signed by persons other than the authorized MWSS signatories.
On the contrary, the findings of NBI show that the MWSS fraud was an
"inside job" and that the petitioner's delay in the reconciliation of bank
statements and the laxity and loose records control in the printing of its
personalized checks facilitated the fraud. Likewise, the questioned
Documents Report No. 159-1074 dated November 21, 1974 of the
National Bureau of Investigation does not declare or prove that the
signatures appearing on the questioned checks are forgeries.
The report merely mentions the alleged differences in the type face,
checkwriting, and printing characteristics appearing in the standard or
submitted models and the questioned typewritings. The NBI Chemistry
Report No. C-74-891 merely describes the inks and pens used in
writing the alleged forged signatures.
It is clear that these three (3) NBI Reports relied upon by the petitioner
are inadequate to sustain its allegations of forgery. These reports did
not touch on the inherent qualities of the signatures which are
indispensable in the determination of 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 two or
more different persons.
Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate
Court, et al, 139 SCRA 238). It must be established by clear,
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MIDTERMS: NEGOTIABLE INSTRUMENTS
positive, and convincing evidence. This was not done in the
present case.
In the instant case, the allegations of forgery were not clearly
established during trial.
Considering the absence of sufficient security in the printing of the
checks coupled with the very close similarities between the genuine
signatures and the alleged forgeries, the twenty-three (23) checks in
question could have been presented to the petitioner's signatories
without their knowing that they were bogus checks. Indeed, the cashier
of the petitioner whose signatures were allegedly forged was unable to
tell the difference between the allegedly forged signature and his own
genuine signature. On the other hand, the MWSS officials admitted
that these checks could easily be passed on as genuine.
xxxx
Moreover, the petitioner is barred from setting up the defense of
forgery under Section 23 of the Negotiable Instruments Law which
provides that:
SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is
forged or made without 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.
● Because it was guilty of negligence not only before the
questioned checks were negotiated but even after the same
had already been negotiated. (See Republic v. Equitable
Banking Corporation, 10 SCRA 8)
● The records show that at the time the twenty-three (23)
checks were prepared, negotiated, and encashed, the
petitioner was using its own personalized checks, instead of
the official PNB Commercial blank checks. In the exercise of
this special privilege, however, the petitioner failed to provide
the needed security measures. That there was gross
negligence in the printing of its personalized checks is
shown by the following uncontroverted facts, to wit:
(1) The petitioner failed to give its printer, Mesina Enterprises, specific
instructions relative to the safekeeping and disposition of excess
forms, check vouchers, and safety papers;
(2) The petitioner failed to retrieve from its printer all spoiled check
forms;
(3) The petitioner failed to provide any control regarding the paper
used in the printing of said checks;
(4) The petitioner failed to furnish the respondent drawee bank with
samples of typewriting, cheek writing, and print used by its printer in
the printing of its checks and of the inks and pens used in signing the
same; and
(5) The petitioner failed to send a representative to the printing office
during the printing of said checks.
● Another factor which facilitated the fraudulent encashment of
the twenty-three (23) checks in question was the failure of
the petitioner to reconcile the bank statements with its own
records.
● It is accepted banking procedure for the depository bank to
furnish its depositors bank statements and debt and credit
memos through the mail. The records show that the
petitioner requested the respondent drawee bank to
discontinue the practice of mailing the bank statements, but
instead to deliver the same to a certain Mr. Emiliano
Zaporteza. For reasons known only to Mr. Zaporteza
however, he was unreasonably delayed in taking prompt
deliveries of the said bank statements and credit and debit
memos. As a consequence, Mr. Zaporteza failed to reconcile
the bank statements with the petitioner's records.
● If Mr. Zaporteza had not been remiss in his duty of taking the
bank statements and reconciling them with the petitioner's
records, the fraudulent encashments of the first checks
should have been discovered, and further frauds prevented.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
This negligence was, therefore, the proximate cause of the
failure to discover the fraud. Thus,
When a person opens a checking account with a bank, he is given
blank checks which he may fill out and use whenever he wishes. Each
time he issues a check, he should also fill out the check stub to which
the check is usually attached. If the depositor has filled out his check
stubs properly, a comparison between them and the cancelled checks
will reveal any forged check not taken from his checkbook. 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
with the amount of such check.
● The records likewise show that the petitioner failed to
provide appropriate security measures over its own records
thereby laying confidential records open to unauthorized
persons.
● Relying on the foregoing statement of Mr. Ongtengco, the
National Bureau of Investigation concluded in its Report
dated November 2, 1970 that the fraudulent encashment of
the twenty-three (23)cheeks in question was an "inside job".
● Even if the twenty-three (23) checks in question are
considered forgeries, considering the petitioner's gross
negligence, it is barred from setting up the defense of forgery
under Section 23 of the Negotiable Instruments Law.
Nonetheless, the petitioner claims that it was the negligence of the
respondent Philippine National Bank that was the proximate cause of
the loss.
The argument has no merit. The records show that the respondent
drawee bank, had taken the necessary measures in the detection of
forged checks and the prevention of their fraudulent encashment. In
fact, long before the encashment of the twenty-three (23) checks in
question, the respondent Bank had issued constant reminders to all
Current Account Bookkeepers informing them of the activities of
forgery syndicates.
We cannot fault the respondent drawee Bank for not having detected
the fraudulent encashment of the checks because the printing of the
petitioner's personalized checks was not done under the supervision
and control of the Bank.
There is no evidence on record indicating that because of this private
printing the petitioner furnished the respondent Bank with samples of
checks, pens, and inks or took other precautionary measures with the
PNB to safeguard its interests.
Under the circumstances, therefore, the petitioner was in a better
position to detect and prevent the fraudulent encashment of its
checks. Petition for review DISMISSED.
PNB vs CA
G.R. No. L-26001. October 29, 1968
Facts
One Augusto Lim deposited in his current account with PCIB branch a
GSIS check in the sum of P57, 415.00 drawn against PNB. The next
day, the check was forwarded for clearing through the Central Bank, to
the PNB, which did not return said check the next day, or at any other
time, but retained, and paid its amount to the PCIB as well as debited it
against account of the GSIS in the PNB. Upon demand from GSIS, the
sum of P57,415.00 was recredited to the latter‘s account for the reason
that the signatures of its officers were forged.
PNB demanded from PCIB the refund of said sum, which the PCIB
refused to do. Hence, the present action against the PCIB.
PNB: since the signatures of the drawer are forged, so must the
signatures of the supposed indorsers be.
Issue 1: W/N the forged signature fo drawer renders the indorsers‘
signatures to be forged too.
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Held: No. this conclusion does not necessarily follow from said
premise. Besides, there is absolutely no evidence, and the PNB has
not even tried to prove that the aforementioned indorsements are
spurious.
Issue 3: W/N PCIB is negligent
Held: No, by not returning the check to the PCIB, by thereby indicating
that the PNB had found nothing wrong with the check and would honor
the same, and by actually paying its amount to the PCIB, the PNB
induced the latter, not only to believe that the check was genuine and
good in every respect, but, also, to pay its amount to Augusto Lim. In
other words, the PNB was the primary or proximate cause of the loss,
and, hence, may not recover from the PCIB.
When one of two (2) innocent persons must suffer by the wrongful act
of a third person, the loss must be borne by the one whose negligence
was the proximate cause of the loss or who put it into the power of the
third person to perpetrate the wrong.
SC affirmed lower court‘s decisions.
SAN CARLOS MILLING V. BPI
| G.R. No. 37467 | DECEMBER 11, 1933
FORGERY AND MATERIAL ALTERATION: "A bank is bound to know
the signatures of its customers; and if it pays a forged check, it must be
considered as making the payment out of its own funds, and cannot
ordinarily charge the amount so paid to the account of the depositor
whose name was forges."
[FACTS]
San Carlos Milling, organized under the laws of Hawaii, is a business
authorized to engage in business in the PH. Their main office is
located in MNL.
Alfred Cooper held the business in the PH. Joseph Wilson is the
principal employee in MNL. Cooper, desiring to go on vacation, gave
general power of attorney to Newland Baldwin and revoked by Wilson
to dealings with BPI in which plaintiff maintained a deposit.
After a year, Wilson conspiring with Alfredo Dolores, a messenger-
clerk in the MNL office, sent a cablegram (God, this is so old) to
Honolulu requesting a telegraphic transfer to the China Banking Corp
(CBC) of MNL of $100k. The money was received by CBC, likewise a
bank in which plaintiff maintained a deposit, and upon receipt, CBC
sent an exchange contract to plaintiff offering the sum of P201k.
($100k = P201k) On this contract was forged the name of Newland
Baldwin and typed on the body of the contract was a note:
"Please sent us certified check in our favor when transfer in received."
A manager‘s check on the CBC for 201k payable to San Carlos Milling
Company or order was receipted for by Dolores and was deposited
with BPI with a forged endorsement in the name of Newland Baldwin.
BPI credited the account in the sum 201k and passed the cashier‘s
check in the ordinary course of business through the clearing house,
where it was paid by the CBC. BPI then received a letter, purporting to
be signed by Newland Baldwin, directing that 200k be packed for
shipment and delivery the next day.
The next day, the money was turned over to Dolores, who took it to the
plaintiff‘s office, where he turned the money over to Wilson and
received as his share, 10k. (Wow, Dolores is a he. Haha) Moreover,
BPI received a check for P1.00 to cover the cost of packing the money,
still at the name of Newland Baldwin.
After, the crime was discovered, the plaintiff brought a suit against BPI
and CBC for recovery of the money transferred.
CBC contended that they had drawn a check to the credit of the
plaintiff company, that the check had been endorsed for deposit, and
that as the prior endorsement had in law been guaranteed by the Bank
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
of the Philippine Islands, when they presented the cashier's check to it
for payment, the China Banking Corporation was absolved even if the
endorsement of Newland Baldwin on the check was a forgery.
BPI contended that they were not negligent, that they had dealt with
the accredited representatives of the company in the due course of
business, and that the loss was due to the dishonesty of plaintiff's
employees and the negligence of plaintiff's general agent.
TC: BPI acted on good faith, was not guilty of negligence, thus, plaintiff
cannot recover, and that the plaintiff had not exercised adequate
supervision over plaintiff‘s MNL office, thus plaintiff was guilty of
negligence.
Hence this appeal.
[ISSUE/S]
WON plaintiff can recover from BPI.
[HELD]
YES. A bank that cashes a check must know to whom it pays. In
connection with the cashier's check, this duty was therefore upon the
Bank of the Philippine Islands, and the China Banking Corporation was
not bound to inspect and verify all endorsements of the check, even if
some of them were also those of depositors in the bank. It had a right
to rely upon the endorsement of the Bank of the Philippine Islands
when it gave the latter bank credit for its own cashier's check.Thus:
"A bank is bound to know the signatures of its customers; and if it pays
a forged check, it must be considered as making the payment out of its
own funds, and cannot ordinarily charge the amount so paid to the
account of the depositor whose name was forged."
Thus, the proximate cause of the loss was due to the negligence of
BPI in honoring and cashing the checks.
NATIVIDAD GEMPESAW vs.
CA and PHILIPPINE BANK OF COMMUNICATIONS
| G.R. No. 92244 | February 9, 1993
TOPIC FROM THE SYLLABUS: Forgery and Material Alteration –
Sec. 23 –"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."
FACTS:
Petitioner Natividad O. Gempesaw owns and operates four grocery
stores located at Rizal Avenue Extension and at Second Avenue, both
in Caloocan City. Among these groceries are D.G. Shopper's Mart and
D.G. Whole Sale Mart.
Petitioner maintains a checking account with the Caloocan City Branch
of the respondent drawee Bank. To facilitate payment of debts to her
suppliers, petitioner draws checks against her checking account with
the respondent bank as drawee. Her customary practice of issuing
checks in payment of her suppliers were as follows:
 The checks were prepared and filled up as to all material
particulars by her trusted bookkeeper, Alicia Galang, an
employee for more than eight (8) years.
 After the bookkeeper prepared the checks, the completed
checks were submitted to the petitioner for her signature,
together with the corresponding invoice receipts which
indicate the correct obligations due and payable to her
suppliers.
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 Petitioner signed each and every check without bothering to
verify the accuracy of the checks against the corresponding
invoices because she reposed full and implicit trust and
confidence on her bookkeeper.
The issuance and delivery of the checks to the payees named therein
were left to the bookkeeper. Petitioner admitted that she did not make
any verification as to whether or not the checks were actually delivered
to their respective payees. Although the respondent drawee Bank
notified her of all checks presented to and paid by the bank, petitioner
did not verify the correctness of the returned checks, much less check
if the payees actually received the checks in payment for the supplies
she received.
In the course of her business operations covering a period of two
years, petitioner issued, following her usual practice stated above, a
total of eighty-two (82) checks in favor of several suppliers. These
checks were all presented by the indorsees as holders thereof to, and
honored by, the respondent drawee Bank. Respondent drawee Bank
correspondingly debited the amounts thereof against petitioner's
checking account. Most of the aforementioned checks were for
amounts in excess of her actual obligations to the various payees
as shown in their corresponding invoices.
Practically, all the checks issued and honored by the respondent
drawee Bank were crossed checks. Aside from the daily notice given
to the petitioner by the respondent drawee Bank, the latter also
furnished her with a monthly statement of her bank transactions,
attaching thereto all the cancelled checks she had issued and which
were debited against her current account. It was only after the lapse of
more than two (2) years that petitioner found out about the fraudulent
manipulations of her bookkeeper.
All the eighty-two (82) checks with forged signatures of the payees
were brought to Ernest L. Boon, Chief Accountant of respondent
drawee Bank at the Buendia branch, who, without authority therefor,
accepted them all for deposit at the Buendia branch to the credit and/or
in the accounts of Alfredo Y. Romero and Benito Lam. The Chief
Accountant Ernest L. Boon was a very close friend of Alfredo Y.
Romero.
Sixty-three (63) out of the eighty-two (82) checks were deposited in
Savings Account of Alfredo Y. Romero at the respondent drawee
Bank's Buendia branch, and four (4) checks in his Savings Account at
its Ongpin branch. The rest of the checks were deposited in an
account under the name of Benito Lam at the Elcano branch of the
respondent drawee Bank.
About thirty (30) of the payees whose names were specifically written
on the checks testified that they did not receive nor even see the
subject checks and that the indorsements appearing at the back of the
checks were not theirs.
Consequently, petitioner made a written demand on respondent
drawee Bank to credit her account with the money value of the eighty-
two (82) checks totalling P1,208,606.89 for having been wrongfully
charged against her account. Respondent drawee Bank refused to
grant petitioner's demand. Thus, petitioner filed a complaint with the
RTC.
LOWER COURTS’ RULING
RTC – dismissed the complaint.
CA – affirmed RTC‘s decision on two grounds, namely (1) that the
petitioner‘s gross negligence in issuing the checks was the proximate
cause of the loss and (2) assuming that the bank was also negligent,
the loss must nevertheless be borne by the party whose negligence
was the proximate cause of the loss.
ISSUE: WON petitioner is precluded from using forgery as a defense
by reason of her negligence.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
HELD: Yes. Under section 23 of the NIL,forgery is a real or absolute
defense by the party whose signature is forged. A party whose
signature to an instrument was forged was never a party and never
gave his consent to the contract which gave rise to the instrument.
Since his signature does not appear in the instrument, he cannot be
held liable thereon by anyone, not even by a holder in due course.
The said section does not refer only to the forged signature of the
maker of a promissory note and of the drawer of a check. It covers
also a forged indorsement, i.e., the forged signature of the payee or
indorsee of a note or check. Since under said provision a forged
signature is "wholly inoperative", no one can gain title to the instrument
through such forged indorsement. Such an indorsement prevents any
subsequent party from acquiring any right as against any party whose
name appears prior to the forgery. Such forged indorsement cuts off
the rights of all subsequent parties as against parties prior to the
forgery. However, the law makes an exception to these rules
where a party is precluded from setting up forgery as a defense.
As a matter of practical significance, problems arising from forged
indorsements of checks may generally be broken into two types of
cases: (1) where forgery was accomplished by a person not associated
with the drawer — for example a mail robbery; and (2) where the
indorsement was forged by an agent of the drawer. This difference
in situations would determine the effect of the drawer's negligence with
respect to forged indorsements.
While there is no duty resting on the depositor to look for forged
indorsements on his cancelled checks in contrast to a duty imposed
upon him to look for forgeries of his own name, a depositor is under a
duty to set up an accounting system and a business procedure as are
reasonably calculated to prevent or render difficult the forgery of
indorsements, particularly by the depositor's own employees. And if the
drawer (depositor) learns that a check drawn by him has been paid
under a forged indorsement, the drawer is under duty promptly to
report such fact to the drawee bank.
For his negligence or failure either to discover or to report
promptly the fact of such forgery to the drawee, the drawer loses
his right against the drawee who has debited his account under
the forged indorsement. In other words, he is precluded from using
forgery as a basis for his claim for recrediting of his account.
In the case at bar, petitioner admitted that the checks were filled up
and completed by her trusted employee, Alicia Galang, and were later
given to her for her signature. Her signing the checks made the
negotiable instrument complete. Prior to signing the checks, there was
no valid contract yet.Petitioner completed the checks by signing them
as drawer and thereafter authorized her employee Alicia Galang to
deliver the eighty-two (82) checks to their respective payees.
However, instead of issuing the checks to the payees as named in the
checks, Alicia Galangdelivered them to the Chief Accountant of the
Buendia branch of the respondent drawee Bank, a certain Ernest L.
Boon. It was established that the signatures of the payees as first
indorsers were forged.
As a rule, a drawee bank who has paid a check on which an
indorsement has been forged cannot charge the drawer's account for
the amount of said check. An exception to this rule is where the drawer
is guilty of such negligence which causes the bank to honor such a
check or checks.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.
In the case at bar, the petitioner relied implicitly upon the honesty and
loyalty of her bookkeeper, and did not even verify the accuracy of the
amounts of the checks she signed against the invoices attached
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MIDTERMS: NEGOTIABLE INSTRUMENTS
thereto. Furthermore, although she regularly received her bank
statements, she apparently did not carefully examine the same nor the
check stubs and the returned checks, and did not compare them with
the sales invoices. Otherwise, she could have easily discovered the
discrepancies between the checks and the documents serving as
bases for the checks.
It is highly improbable that in a period of two years, not one of
petitioner's suppliers complained of non-payment. Assuming that even
one single complaint had been made, petitioner would have been duty-
bound, as far as the respondent drawee Bank was concerned, to make
an adequate investigation on the matter. Had this been done, the
discrepancies would have been discovered, sooner or later.
Petitioner's failure to make such adequate inquiry constituted
negligence which resulted in the bank's honoring of thesubsequent
checks with forged indorsements.
One thing is clear from the records —the petitioner failed to
examine her records with reasonable diligence whether before
she signed the checks or after receiving her bank statements.
Thus, petitioner's negligence was the proximate cause of her
loss. And since it was her negligence which caused the respondent
drawee Bank to honor the forged checks or prevented it from
recovering the amount it had already paid on the checks, petitioner
cannot now complain should the bank refuse to recredit her account
with the amount of such checks. Under Section 23 of the NIL, she is
now precluded from using the forgery to prevent the bank's debiting of
her account, by reason of her gross negligence.
Although, under Section 196 of the NIL, any case not provided for in
the Act shall be governed by the provisions of existing legislation.
However, under the laws of quasi-delict, she cannot point to the
negligence of the respondent drawee Bank in the selection and
supervision of its employees as being the cause of the loss because
her negligence is the proximate cause thereof and under Article 2179
of the Civil Code, she may not be awarded damages.
However, under Article 1170 of the same Code the respondent drawee
Bank may be held liable for damages. The article provides:
"Those who in the performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner contravene the
tenor thereof, are liable for damages."
There is no question that there is a contractual relation between
petitioner as depositor (obligee) and the respondent drawee bank as
the obligor. In the performance of its obligation, the drawee bank is
bound by its internal banking rules and regulations which form part of
any contract it enters into with any of its depositors. When it violated its
internal rules that second endorsements are not to be accepted without
the approval of its branch managers and it did accept the same upon
the mere approval of Boon, a chief accountant, it contravened the
tenor of its obligation at the very least, if it were not actually guilty of
fraud or negligence.
The SC held that banking business is so impressed with public interest
where the trust and confidence of the public in general is of paramount
importance such that the appropriate standard of diligence must be a
high degree of diligence, if not the utmost diligence. Surely, respondent
drawee Bank cannot claim it exercised such a degree of diligence that
is required of it. There is no way the Court can allow it now to escape
liability for such negligence. Its liability as obligor is not merely
vicarious but primary wherein the defense of exercise of due diligence
in the selection and supervision of its employees is of no moment.
Thus, premises considered, the case is REMANDED to the trial
court for the reception of evidence to determine the exact amount
of loss suffered by the petitioner.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
REPUBLIC OF THE PHILIPPINES V. EQUITABLE BANKING
CORPORATION
I G.R. NO. L-15894 I JANUARY 30, 1964
Topic From the Syllabus: Forgery and Material Alteration
Where a loss, which must be borne by one of two parties alike
innocent of forgery, can be traced to the neglect or fault of either, it is
reasonable that it would be borne by him, even if innocent of any
intentional fraud, through whose means it has succeeded.
FACTS:
The Republic of the Philippines (Government) seeks to recover
the total sum of P342,767.63, representing the aggregate value of
twenty-four (24) warrants similarly paid by the Treasurer to the PI
Bank. These claims for refund are based upon a common ground —
although said twenty-eight (28) warrants were executed on genuine
government forms, the signature thereon of the drawing office and that
of the representative of the Auditor General in that office are forged.
From July to December 1952, the Corporacion de los Padres
Dominicos (Corporacion) had acquired the twenty-four (24) treasury
warrants involved in case G.R. No. L-15895 by accommodating its
former trusted employee, Jacinto Carranza, who asked the
Corporacion to cash the warrants, alleging that it was difficult to do so
directly with the Government and that his wife expected a sort of
commission for the encashment; that the Corporacion acceded to
Carranza's request, provided that the warrants would first be deposited
with PI Bank, and that actual payment of the value of the warrants
would be made only after the same had been duly accepted and
cleared by the Treasurer and the proceeds thereof duly credited to the
account of the Corporacion in the PI Bank; that the warrants were,
accordingly, deposited by the Corporacion with said bank, which
accepted them "subject to collection only"; that when the warrants
were deposited with the PI Bank, each bore the indorsement of the
respective payees and that of the Corporation; that, subsequently, the
PI Bank presented the warrants for payment to the drawee, the
Government, thru the Clearing Office of the Central Bank; that after
being cleared, the warrants were paid by the Treasurer.
The PI Bank credited the proceeds of said warrants to the
Corporation, which, in turn, withdrew said proceeds by means of its
own checks and eventually paid the corresponding amounts to Jacinto
Carranza. Record shows that four (4) warrants involved therein were
deposited with the Equitable Bank by persons known thereto as its
depositors or customers, namely, Robert Wong, Lu Chill Kau and
Chung Ching; that, in due course, the Equitable Bank cleared said
warrants, thru the Clearing Office, then collected the corresponding
amounts from the Treasurer and thereafter credited said amounts to
the accounts of the respective depositors; that on January 15, 1958,
the Treasurer notified the Equitable Bank of the alleged defect of said
warrants and demanded reimbursement of the amounts thereof; and
that this demand was rejected by the Equitable Bank.
The clearing of the aforementioned twenty-eight (28) warrants
thru the Clearing Office was made pursuant to the "24-hour clearing
house rule", which had been adopted by the Central Bank in a
conference with representatives and officials of the different banking
institutions in the Philippines.
ISSUE: Whether or not the Government can recover the amounts paid
erroneously in consideration of the 28 treasury warrants,which in fact,
were forged.
HELD:
NO. The Government was found to be negligent, thus they are not
entitled to recovery. It was the Treasurer who initially cleared the 28
treasury warrant, being a member of the aforementioned Clearing
Office.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
The aforementioned twenty-eight (28) warrants were cleared and
paid by the Treasurer, in view which the PI Bank and the Equitable
Bank credited the corresponding amounts to the respective depositors
of the warrants and then honored their checks for said amounts. Thus,
the Treasury had not only been negligent in clearing its own warrants,
but had, also, thereby induced the PI Bank and the Equitable Bank to
pay the amounts thereof to said depositors.
The irregularity of said warrants was apparent the face thereof,
from the viewpoint of the Treasury. Moreover, the same had not
advertised the loss of genuine forms of its warrants. Neither had the PI
Bank nor the Equitable Bank been informed of any irregularity in
connection with any of the warrants involved in these two (2) cases,
until after December 23, 1952, — or after the warrants had been
cleared and honored — when the Treasury gave notice of the forgeries
adverted to above. As a consequence, the loss of the amounts thereof
is mainly imputable to acts and omissions of the Treasury, for which
the PI Bank and the Equitable Bank should not and cannot be
penalized.
RATIO:
Generally, where a drawee bank otherwise would have a right of
recovery against a collecting or indorsing bank for its payment of a
forged check its action will be barred if it is guilty of an unreasonable
delay in discovering the forgery and in giving notice thereof.
BANCO DE ORO SAVINGS vs EQUITABLE BANKING CORP.
G.R. No. 74917 January 20, 1988
[FACTS]
BDO drew six crossed Manager's check amounting to 45,982.23
Pesos and payable to certain member establishments of Visa Card.
Subsequently, the Checks were deposited with Equitable Banking to
the credit of its depositor, a certain Aida Trencio.
Following normal procedures, and after stamping at the back of the
Checks the usual endorsements. All prior and/or lack of endorsement
guaranteed thatEquitablesent the checks for clearing through the
Philippine Clearing House Corporation (PCHC). Accordingly, BDO paid
the Checks; its clearing account was debited for the value of the
Checks and Equitable‘s clearing account was credited for the same
amount. Thereafter, BDO discovered that the endorsements appearing
at the back of the Checks and purporting to be that of the payees were
forged and/or unauthorized or otherwise belong to persons other than
the payees. BDO presented the Checks directly toEquitablefor the
purpose of claiming reimbursement from the latter. However, Equitable
refused.
Thus, the present complaint.
[LOWER COURT’S RULING]
Under Arbitration, ruled in favour of BDO. RTC affirmed.
[ISSUES]
WON the Bank is liable to reimburse, due to the forgery.
[HELD]
YES.
In the matter of forgery in endorsements, this Court has succinctly
emphasized that 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.
Thus, We hold that 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 for the
purpose of determining their genuineness and regularity. The collecting
bank being primarily engaged in banking holds itself out to the public
as the expert and the law holds it to a high standard of conduct.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
And although the subject checks are non-negotiable (this was another
issue, altho irrelevant to the topic) the responsibility of petitioner as
indorser thereof remains. To countenance a repudiation by the
petitioner of its obligation would be contrary to equity and would deal a
negative blow to the whole banking system of this country.
RTC decision affirmed.
[RATIO RE: TOPIC]
Every indorser who indorsee without qualification, warrants to all
subsequent holders in due course' (a) that the instrument is genuine
and in all respects what it purports to be; (b) that he has good title to it;
(c) that all prior parties have capacity to contract; and (d) that the
instrument is at the time of his indorsement valid and subsisting.
REPUBLIC BANK vs. MAURICIA T. EBRADA
G.R. No. L-40796 July 31, 1975
TOPIC FROM THE SYLLABUS:
According to Section 23 of the NIL, where the signature on a
negotiable instrument is forged, the negotiation of the check is without
force or effect. However, this does not mean that the existence of one
forged signature therein will render void all the other negotiations of the
check with respect to the other parties whose signature are genuine.
Those indorsers who did not know of the forgery, should be considered
valid and enforceable, barring any claim of forgery. Furthermore, an
indorser who purchases a check is bound to satisfy himself that the
paper is genuine and that, by indorsing it, he asserts that he performed
his duty; the drawee [Bank] who has paid the forged check, without
negligence on its part, may recover the money from such negligent
purchasers or indorsers.
FACTS:
Mauricia Ebrada (defendant/Ebrada) encashed a check, dated Jan 15,
1963, for P1, 246.08 at the Republic Bank (RB/Plaintiff Bank). The
check was issued by Bureau of Treasury (Bureau). Later, RB was later
advised by the Bureau that the indorsement on the check by the
original payee, Martin Lorenzo, was a forgery, since the latter was
already dead since July on 15, 1952.
Knowing this, the Bureau asked a refund from RB, to which the latter
did. To recover what it had refunded to the Bureau, Plaintiff Bank made
demands upon defendant Ebrada to account for the sum of P1,246.08,
but said defendant refused to do so. So plaintiff Bank sued defendant
Ebrada before the City Court of Manila.
In her Answer, Ebrada denied material allegations and put up the
affirmative defense that she was a holder in due course, and alleged
that the Bank has no cause of action, and that the bank was in
estoppel. Consequently, Ebrada filed a Third-Party complaint against
Adelaida Dominguez who, in turn, filed on September 14, 1966 a
Fourth-Party complaint against Justina Tinio, the indorsers prior to
her.
Thus,
Maker  (Payee) Martin Lorenzo (+)  Ramon Lorenzo  Delia
Dominguez  Mauricia Ebrada
LOWER COURT’S RULING
TC: rendered judgment for the plaintiff Bank against defendant
Ebrada; for Third-Party plaintiff against Third-Party defendant,
Adelaida Dominguez, and for Fourth-Party plaintiff against Fourth-
Party defendant, Justina Tinio.
Before the CFI, Ebrada appealed where the parties submitted to a
partial stipulation of facts.
Pertinent Facts:
 On Jan 15, 1963, Bureau of Treasury issued a check
payable to the order of MARTIN LORENZO in the sum of
P1, 246.08 and drawn on the Republic Bank.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
 At the back of the check, the following signatures are found
in this order: 1.) Martin Lorenzo; 2.) Ramon R. Lorenzo; 3.
Delia Dominguez; and 4. Maurica T. Ebrada.
 That the check was delivered to Ebrada by Dominguez for
the purpose of encashment.
 That Ebrada affixed her signature on the check on Feb 27
1963, when she encashed it with Republic Bank.
 That after receiving the cash proceeds from RB, Ebrada
turned over the amount to Dominguez, who in turn, handed
the amount to Justinia Tinio.
TC: ordered the defendant Mauricia T. Ebrada to pay Republic Bank
P1, 246.08
CA: (Elevated to SC for pure question of law?)
ISSUE: Whether or not the bank can recover from the last
indorser, defendant Ebrada.
HELD: YES. It is admitted that Ebrada was the last indorser of the said
check. As such indorser, she was supposed to have warranted that
she has good title to said check; for under Section 65 and Section 66
of the Negotiable Instruments Law.
However, it turned out that the signature of the original payee of the
check, Martin Lorenzo, was a forgery because he was already dead,
almost 11 years before the check in question was issued by the
Bureau. According to Section 23 of the NIL, where the signature on a
negotiable instrument is forged, the negotiation of the check is without
force or effect.
But does this mean that the existence of one forged signature
therein will render void ALL THE OTHER NEGOTIATIONS OF THE
CHECK with respect to the other parties whose signature are
genuine?
No, it was held that it is only the negotiation based on the forged or
unauthorized signature which is inoperative. This means that the
negotiation of the check in question from Martin Lorenzo, the original
payee, to Ramon R. Lorenzo, the second indorser, should be declared
of no effect, but the negotiation of the aforesaid check from Ramon R.
Lorenzo to Adelaida Dominguez, the third indorser, and from Adelaida
Dominguez to the defendant-appellant Ebrada, who did not know of
the forgery, should be considered valid and enforceable, barring
any claim of forgery. [Since Ebrada did not know of the forgery, is
she absolved from liability? NO, she was still negligent. See
below.]
What happens then, if, after the Republic Bank has paid the
amount of the check to the holder (Ebrada) thereof, it was
discovered that the signature of the payee (Martin Lorenzo, dead
person) was forged? Can RB recover from Ebrada, the one who
encashed the check?
Yes. In a similar case, State v. Broadway Mut. Bank, it was held that
the drawee of a check can recover from the holder the money paid to
him on a forged instrument.
Why so?
Since it is not the duty of the bank to ascertain whether the signatures
of the payee (Martin) was genuine or not. The indorsers herein, is
supposed to warrant to the Bank that the signature of the payee and
previous indorsers were genuine. An indorser who purchases a check
is bound to satisfy himself that the paper is genuine and that, by
indorsing it, he asserts that he performed his duty and the drawee who
has paid the forged check, the Bank without negligence on its part,
may recover the money from such negligent purchasers or indorsers.
The recovery at bar is permitted because although the drawee
Bank was in a way negligent in failing to detect the forgery, yet if
the encashers (Ebrada et al) of the check had performed their
duties, the forgery would in all probability, have been detected
and the fraud defeated.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
Therefore, Ebrada was duty bound to ascertain whether the check
was genuine before presenting it to plaintiff Bank for payment.
Her failure to do so makes her liable for the loss and the plaintiff
Bank may recover from her the money she received for the check.
Withal, since RB already suffered the loss when it paid the check to
Ebrada, it has still the remedy to recover from the latter the amount the
Bank paid to her. Although Ebrada was not the forger, she was the last
indorser of the check, and has warranted she has god title to it.
Ebrada was also liable as Accomodation Party
What about the fact that after receiving the cash proceeds, Ebrada
turned over the cash to Adelaida, and Adelaida in turn, handed it to
Justina? Would this exempt Ebrada (defendant) from liability?
No. by doing so, she acted as an accommodation party in the check
for which she is also liable under Section 29, NIL: An accommodation
party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is
liable on the instrument to a holder for value, notwithstanding such
holder at the time of taking the instrument knew him to be only an
accommodation party.
SC’s Disposition: Judgment appealed from is hereby affirmed in toto
with costs against defendant-appellant.
RATIO RE: TOPIC FROM SYLLABUS
As a general rule, according to Section 23 of the NIL, where the
signature on a negotiable instrument is forged, the negotiation of the
check is without force or effect. However, this does not mean that the
existence of one forged signature therein will render void all the other
negotiations of the check with respect to the other parties whose
signature are genuine. Those indorsers who did not know of the
forgery, should be considered valid and enforceable, barring any claim
of forgery.
However, this also does not mean that the indorser is free from
responsibilities: as indorser, Ebrada was duty bound to ascertain
whether the check was genuine before presenting it to plaintiff Bank for
payment. Her failure to do so in the case at bar, makes her liable for
the loss and the plaintiff Bank may recover from her the money she
received for the check.
ASSOCIATED BANK V. CA
| G.R. No. 89802 | MAY 7, 1992
[TOPIC FROM THE SYLLABUS]
Drawee bank cannot go after CB in beater and order instrument if
there is a forgery. However, the exception:
FORGERY AND MATERIAL ALTERATION: "the law imposes a duty of
diligence on the collecting bank to scrutinize checks deposited with it,
for the purpose of determining their genuineness and regularity. The
collecting bank, being primarily engaged in banking, holds itself out to
the public as the expert on this filed, and the law thus holds it to high
standard of conduct."
[FACTS]
Private respondent is engaged in the business of ready-to-wear
garments under the firm name ―Melissa‘s RTW.‖ She deals with
Robinson‘s Dept Store, Payless, Rempson, and the Corona Bazaar.
These companies issued in payment of their respective accounts
crossed checks payable to Melissa‘s RTW totaling 15,805 pesos.
When respondent went to these companies to collect, she was
informed of the issuance of the checks which upon further inquiry
revealed that the said checks had been deposited with the Associated
Bank and subsequently paid by it to one Sayson. Sayson had not been
authorized by the private respondent to deposit and encash the said
checks.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
Respondent sued the petitioners in the RTC for recovery of the total
value plus damages.
[LOWER COURT’S RULING]
RTC: judgment rendered in favor of respondent. Petitioners appealed
to CA contending that respondent had no cause of action an should
have proceeded against the companies that issued the checks.
CA: Affirmed RTC. Cause of action of respondent arose from the
illegal, anomalous and irregular acts of the appellants in violating
common banking practices to the damage and prejudice of the
respondent, in allowing to be deposited and encashed the checks to
improper parties.
Hence this petition.
[ISSUE/S]
WON private respondent has a cause of action. Petitioners say ang
companies ang liable since didtonilagihatag ang checks to those not
authorized.
[HELD]
YES. The six checks in the case at bar had been crossed and issued
"for payee's account only." This could only signify that the drawers had
intended the same for deposit only by the person indicated, to wit,
Melissa's RTW.
The petitioners were negligent when they permitted the encashment of
the checks by Sayson. The Bank should have first verified his right to
endorse the crossed checks, of which he was not the payee, and to
deposit the proceeds of the checks to his own account. In Banco de
Oro Savings and Mortgage Bank v. Equitable Banking Corp:
"the law imposes a duty of diligence on the collecting bank to scrutinize
checks deposited with it, for the purpose of determining their
genuineness and regularity. The collecting bank, being primarily
engaged in banking, holds itself out to the public as the expert on this
field, and the law thus holds it to a high standard of conduct."
Petitioners (desperately) insist that the respondent has no cause of
action because they have no privity of contract with her. They (more
desperately) argued that it was Eddie Reyes, the respondent‘s own
husband, who endorsed the checks. Also, alleged (most desperately)
that the check was forged.
Still the court said that he was not authorized to make endorsements,
and even if the endorsements were forged, the Bank would still be
liable to the respondent for not verifying the endorser‘s authority. There
is no difference between actual forging and an endorsement by a
person not authorized.
Moreover, the Bank had stamped on the back thereof the words: "All
prior endorsements and/or lack of endorsements guaranteed," and
thus made the assurance that it had ascertained the genuineness of all
prior endorsements.
Thus, petitioner is indeed liable to the respondent. Petition is denied.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
GREAT EASTERN LIFE INSURANCE CO. vs.
HONGKONG& SHANGHAI BANKING Co. and PHILIPPINE
NATIONAL BANK
| G.R. No. 18657 | August 23, 1922
FACTS:
On May 3, 1920, the plaintiff drew its check for P2,000 on the
Hongkong and Shanghai Banking Corporation with whom it had an
account, payable to the order ofLazaro Melicor. However, E.M.
Maasim fraudulently obtained possession of the check, forged
Melicor's signature, as an endorser, and then personally
endorsed and presented it to the Philippine National Bank where the
amount of the check was placed to his credit.
After having paid the check, and on the next day, the Philippine
National Bank endorsed the check to the Hongkong and Shanghai
Banking Corporation, which it paid, and charged the amount of the
check to the account of the plaintiff.In the ordinary course of business,
the Hongkong and Shanghai Banking Corporation rendered a bank
statement to the plaintiff showing that the amount of the check was
charged to its account, and no objection was then made to the
statement.
About four months after the check was charged to the account of the
plaintiff, it discovered that Lazaro Melicor, to whom the check was
made payable, had never received it, and that his signature, as an
endorser, was forged by Maasim, who presented and deposited it to
his private account in the Philippine National Bank.
With this knowledge, the plaintiff promptly made a demand upon the
Hongkong and Shanghai Banking Corporation that it should be given
credit for the amount of the forged check, which the bank refused to
do. Thus, the plaintiff commenced an action to recover the P2,000
which was paid on the forged check.
The Shanghai Bank denies any liability, but prays that, if a judgment
should be rendered against it, in turn, it should have like judgment
against the Philippine National Bank which denies all liability to either
party.
LOWER COURT’S RULING
RTC – rendered a judgment in favor of the Shanghai Bank and
Philippine National Bank.
ISSUE: WON the defendant banks are liable for the consequences of
the forgery on the negotiable instrument
HELD: Yes. Plaintiff's check was drawn on the Shanghai Bank
payable to the order of Melicor. In other words, the plaintiff
authorized and directed the Shanghai Bank to pay Melicor, or his
order, P2,000. It did not authorize or direct the bank to pay the
check to any other person than Melicor, or his order, and the
testimony is undisputed that Melicor never did part with his title or
endorse the check, and never received any of its proceeds.
Neither is the plaintiff estopped or bound by the bank statement, which
was made to it by the Shanghai Bank. This is not a case where the
plaintiff's own signature was forged to one of its checks.In such a case,
the plaintiff would have known of the forgery, and it would have been
its duty to have promptly notified the bank of any forged signature, and
any failure on its part would have released the bank from any liability.
That is not this case.
Here, the forgery was that of Melicor, who was the payee of the check,
and the legal presumption is that the bank would not honor the
check without the genuine endorsement of Melicor. In other words,
when the plaintiff received its bank statement, it had a right to assume
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MIDTERMS: NEGOTIABLE INSTRUMENTS
that Melicor had personally endorsed the check, and that, otherwise,
the bank would not have paid it.
Section 23 of Act No. 2031, known as the Negotiable Instruments Law,
says:
"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."
That section is square in point.
The money was on deposit in the Shanghai Bank, and it had no legal
right to pay it out to anyone except the plaintiff or its order. Here, the
plaintiff ordered the Shanghai Bank to pay the P2,000 to Melicor, and
the money was actually paid to Maasim and was never paid to Melicor.
Melicor never personally endorsed the check, or authorized any one to
endorse it for him, and the alleged endorsement was a forgery. Hence,
upon the undisputed facts, it must follow that the Shanghai Bank
has no defense to this action.
As it is admitted that the Philippine National Bank cashed the check
upon a forged signature, and placed the money to the credit of
Maasim, who was the forger, then endorsed the check and forwarded
it to the Shanghai Bank by whom it was paid, the Philippine National
Bank had no license or authority to pay the money to Maasim or
anyone else upon a forged signature. It was its legal duty to know
that Melicor's endorsement was genuine before cashing the check. Its
remedy is against Maasim to whom it paid the money.
Judgment of the lower court is reversed. HSBC is ordered to pay
plaintiff P2,000 with interest and costs of action. A judgement in
favor of HSBC as against PNB is likewise entered for the same
amount with costs of action.
RATIO – The insurance company is not liable on the check because its
order is to pay the amount thereof to P or his order and not to any
other persons. The insurance company, being the drawer, was not
found to be negligent in the handling of its business affairs and the
theft of the check by a total stranger was not attributable to negligence
of the drawer; neither was the forging of the payee's indorsement due
to the drawer's negligence. Since the drawer was not negligent, the
drawee (HSBC) was duty-bound to restore to the drawer's account the
amount theretofore paid under the check with a forged payee's
indorsement because the drawee did not pay as ordered by the
drawer.
METROPOLITAN BANK AND TRUST COMPANY V. THE FIRST
NATIONAL CITY BANK
I G.R. No. L-55079 I November 19, 1982
Topic From the Syllabus: Forgery and Material Alteration
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.
FACTS:
On August 25, 1964, Check No. 7166 dated July 8, 1964 for
P50,000.00, payable to CASH, drawn by Joaquin Cunanan &
Company on FNCB was deposited with Metrobank by a certain
Salvador Sales. Earlier that day, Sales had opened a current account
with Metro Bank depositing P500.00 in cash.Metro Bank immediately
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
sent the cash check to the Clearing House of the Central Bank with the
following words stamped at the back of the check:
Metropolitan Bank and Trust Company Cleared (illegible) office All
prior endorsements and/or Lack of endorsements Guaranteed.
The check was cleared the same day. Private respondent paid
petitioner through clearing the amount of P50,000.00, and Sales was
credited with the said amount in his deposit with Metro Bank.
On August 26, 1964, Sales made his first withdrawal of P480.00
from his current account. On August 28, 1964, he withdrew
P32,100.00. Then on August 31, 1964, he withdrew the balance of
P17,920.00 and closed his account with Metro Bank. Nine (9) days
later, FNCB returned cancelled Check No. 7166 to drawer Joaquin
Cunanan & Company, together with the monthly statement of the
company's account with FNCB. That same day, the company notified
FNCB that the check had been altered. The actual amount of P50.00
was raised to P50,000.00, and over the name of the payee, Manila
Polo Club, was superimposed the word CASH.
FNCB notified Metro Bank of the alteration by telephone,
confirming it the same day with a letter, which was received by Metro
Bank on the following day, September 4, 1964.On September 10,
1964, FNCB wrote Metro Bank asking for reimbursement of the
amount of P50,000.00.
The latter did not oblige, so that FNCB reiterated its request on
September 29, 1964. Metro Bank was adamant in its refusal.On June
29, 1965, FNCB filed in the Court of First Instance of Manila, Branch
VIII, Civil Case No. 61488 against Metro Bank for recovery of the
amount of P50,000.00.
LOWER COURT’S RULING:
RTC- ordered Metro Bank to reimburse FNCB the amount of
P50,000.00 with legal rate of interest from June 25, 1965 until fully
paid, to pay attorney's fees of P5,000.00, and costs.
CA- affirmed the judgment of the trial court
ISSUE: Whether or not Metrobank should reimsburse FNCB for the
altered amount as indorser.
HELD:
NO. FNCB is liable. The drawee bank receiving the check for
clearing from the Central Bank Clearing House must return the check
to the collecting bank within the 24-hour period if the check is defective
for any reason which FNCB failed to do so. Indorsement must be read
together with the 24-hour regulation on clearing House Operations of
the Central Bank.
FNCB did not deny the allegation of Metro Bank that before it
allowed the withdrawal of the balance of P17,920.00 by Salvador
Sales, Metro Bank withheld payment and first verified, through its
Assistant Cashier Federico Uy, the regularity and genuineness of the
check deposit from Marcelo Mirasol, Department Officer of FNCB,
because its (Metro Bank) attention was called by the fast movement of
the account.
RATIO:
Items which should be returned for any reason whatsoever shall
be delivered to and received through the clearing Office in the special
red envelopes and shall be considered and accounted as debits to the
banks to which the items are returned. Nothing in this section shall
prevent the returned items from being settled by reinbursement to the
bank, institution or entity returning the items.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
REPUBLIC BANK vs CA
G.R. No. 42725. April 22, 1991
[OVERVIEW]
Banco De Oro v Equitable Banking ruling is amended to include the
24-hour clearing house rule, which provides that should the drawee
bank fail to return a forged or altered check to the collecting bank
within the 24-hour clearing period, the collecting bank is absolved from
liability.
[FACTS]
San Miguel Corporation (SMC) drew a dividend check for P240 on its
account in First National City Bank (FNCB) in favor of J. Roberto C.
Delgado, a stockholder. After the check had been delivered to
Delgado, the amount on its face was fraudulently and without authority
of SMC, altered by increasing it from P240 to P9,240. The check was
indorsed and deposited on March 14, 1966 by Delgado in his account
with the Republic Bank.
Republic accepted the check for deposit without ascertaining its
genuineness and regularity. Later, Republic endorsed 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
through the Central Bank Clearing House. This guarantee led FNCB to
pay P9,240 to Republic.
SMC notified FNCB of the material alteration in the amount of the
check in question. FNCB lost no time in recrediting P9,240 to SMC.
FNCB informed Republic in writing of the alteration and the forgery of
the endorsement of J. Roberto C. Delgado. By then, Delgado had
already withdrawn his account from Republic.
On August 15, 1966, FNCB demanded that Republic refund the
P9,240 on the basis of the latter‘s endorsement and guaranty.
Republic refused, claiming there was delay in giving it notice of the
alteration; that it was not guilty of negligence; that it was the drawer‘s
(SMC‘s) fault in drawing the check in such a way as to permit the
insertion of numerals increasing the amount; that FNCB, as drawee,
was absolved of any liability to the drawer (SMC), thus, FNCB had no
right of recourse against Republic.
[LOWER COURT’S RULING]
Trial court favoured Republic.
CA affirmed lower court.
[ISSUES]
WON Republic is liable to refund the amount paid
[HELD]
No.
The 24-hour clearing house rule applies. [Section 4(c) of Central Bank
Circular No. 9]
"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… 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."
It is true that when an endorsement is forged, the collecting bank or
last endorser, as a general rule, bears the loss. But the unqualified
endorsement of the collecting bank on the check should be read
together with the 24-hour regulation on clearing house operation. Thus,
when the drawee bank fails to return a forged or altered check to the
collecting bank within the 24-hour clearing period, the collecting bank
is absolved from liability.
There is nothing inequitable in such a rule for if in the regular course of
business the check comes to the drawee bank which, having the
opportunity to ascertain its character, pronounces it to be valid and
pays it, it is not only a question of payment under mistake, but payment
in neglect of duty which the commercial law places upon it, and the
result of its negligence must rest upon it.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
ILUSORIO VS CA
G.R. No. 139130 November 27, 2002
TOPIC FROM THE SYLLABUS
True, it is a rule that when a signature is forged or made without the
authority of the person whose signature it purports to be, the check is
wholly inoperative. No right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party,
can be acquired through or under such signature. However, the rule
does provide for an exception, namely: "unless the party against
whom it is sought to enforce such right is precluded from setting
up the forgery or want of authority."
FACTS
Petitioner Ramon Ilusorio is a prominent businessman who was the
Managing Director of Multinational Investment Bancorporation and the
Chairman and/or President of several other corporations. He was a
depositor in good standing of private respondent bank, the Manila
Banking Corporation (MBC). As he was running about 20 corporations,
and was going out of the country a number of times, petitioner
entrusted to his secretary, Katherine E. Eugenio (Katherine), his credit
cards and his checkbook with blank checks. It was also Katherine who
verified and reconciled the statements of said checking account.
Between September 5, 1980 and Jan 23, 1981, Katherine was able to
encash and deposit to her personal account 17 checks drawn against
Ilusorio‘s account with an aggregate amount of P119, 634.34. Illusorio
didn‘t bother checking his statement of account until someone apprised
him he saw Katherine use Illusorio‘s credit cards.
As such, Ilusorio fired Katherine immediately and instituted a criminal
action against her for estafa thru falsification. MBC also lodged a
complaint against Katherine for estafa thru falsification of commercial
documents.
Therafter, MBC sought the expertise of NBI to determine genuineness
of the signatures. NBI suggested that Ilusorio be asked to submite 7
more additional standard signatures, however, petitioner failed to
comply with this request.
Illusorio requested MBC to restore to his account the value of the
checks wrongfully encashed but MBC refused, thus this instant case.
LOWER COURT’S RULING:
TC: Dismissed, no sufficient basis for plaintiff‘s cause against MBC.
CA: Affirmed TC ruling.
ISSUES
(1) W/N petitioner has a cause of action against private respondent
(NO)
(2) W/N private respondent bank, in filing an estafa case against
petitioner‘s secretary, is barred from raising the defense that the fact of
forgery was not established (NO)
HELD:
1. Petitioner has no cause of action against Manila Bank. To be
entitled to damages, petitioner has the burden of proving negligence
on the part of the bank for failure to detect the discrepancy in the
signatures on the checks. It is incumbent upon petitioner to establish
the fact of forgery, i.e., by submitting his specimen signatures and
comparing them with those on the questioned checks. Curiously
though, petitioner failed to submit additional specimen signatures as
requested by the NBI from which to draw a conclusive finding
regarding forgery. The Court of Appeals found that petitioner, by his
own inaction, was precluded from setting up forgery.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
Did the bank exercise due diligence?
Yes. Consistently, the CA and the RTC found that Manila Bank
employees exercised due diligence in cashing the checks. The bank‘s
employees in the present case did not have a hint as to Eugenio‘s
modus operandi because she was a regular customer of the bank,
having been designated by petitioner himself to transact in his behalf.
According to the appellate court, the employees of the bank exercised
due diligence in the performance of their duties. Of course it is possible
that the verifiers of TMBC might have made a mistake in failing to
detect any forgery -- if indeed there was. However, a mistake is not
equivalent to negligence if they were honest mistakes. In the instant
case, we believe and so hold that if there were mistakes, the same
were not deliberate, since the bank took all the precautions.
BUT, REVERSE UNO CARD- It was petitioner, not the bank, who was
negligent. On two instances pa gyud! OOF.
First, petitioner accorded his secretary an unusual degree of trust and
unrestricted access to his credit cards, passbooks, check books, bank
statements, including custody and possession of cancelled checks and
reconciliation of accounts.
Secondly, Petitioner‘s failure to examine his bank statements appears
as the proximate cause of his own damage. He had all the
opportunities to verify his account as well as the cancelled checks
issued thereunder -- month after month. But he did not, until his partner
asked him whether he had entrusted his credit card to his secretary
because the said partner had seen her use the same. It was only then
that he was minded to verify the records of his account. Had he done
so, he could have been alerted to any anomaly committed against him.
In other words, petitioner had sufficient opportunity to prevent or detect
any misappropriation by his secretary had he only reviewed the status
of his accounts based on the bank statements sent to him regularly. In
view of Article 2179 of the New Civil Code, when the plaintiff‘s own
negligence was the immediate and proximate cause of his injury, no
recovery could be had for damages.
ON FORGERY:
True, it is a rule that when a signature is forged or made without the
authority of the person whose signature it purports to be, the check is
wholly inoperative. No right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party,
can be acquired through or under such signature.
However, the rule does provide for an exception, namely: "unless the
party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority."
Here, it is the exception that applies. In our view, petitioner 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.
Why petitioner’s reliance on Associated Bank vs CA and
Philippine Bank of Commerce vs CA was misplaced- In those
cases, the banks were negligent for failing to observe precautionary
measures to detect the forgery; while here, MBC‘s personnel diligently
performed their duties.
Issue 2: W/N private respondent bank, in filing an estafa case
against petitioner’s secretary, is barred from raising the defense
that the fact of forgery was not established-
No. MBC is not estopped from asserting the fact that forgery has not
been clearly established. Petitioner cannot hold private respondent in
estoppel for the latter is not the actual party to the criminal action. In a
criminal action, the State is the plaintiff, for the commission of a felony
is an offense against the State. Thus, under Section 2, Rule 110 of the
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
Rules of Court the complaint or information filed in court is required to
be brought in the name of the "People of the Philippines.
SC’s DISPOSITION: the instant petition is DENIED for lack of
merit. CA’s decision is AFFIRMED.
RATIO:
When a signature is forged or made without the authority of the person
whose signature it purports to be, the check is wholly inoperative.
However, the rule does provide for an exception, namely: "unless the
party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority."
Here, it is the exception that applies. In our view, petitioner 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.
PCIB V. CA
| G.R. Nos.121413, 121479, & 128604 | JANUARY 29, 2001
[TOPIC FROM THE SYLLABUS]
FORGERY AND MATERIAL ALTERATION: In crossed checks, the
collecting bank is bound to scrutinize the check and know its
depositors before clearing indorsement; that as a general rule, banks
are liable for wrongful or tortuous acts of its agents within the scope
and in the course of their employment; that failure of the drawee bank
to seasonably discover irregularity in the checks constitutes negligence
and renders the bank liable for loss of proceeds of the checks.
[FACTS](medyo complicated nisiya, basta Petitioner is PCIB and
Citibank and respondent is Ford Motors)
In general:
Respondent Ford drew and issued a 3 Citibank Checks on 1977, 1978,
and 1979, all in favor of the Commissioner of Internal Revenue (CIR)
for payment of its percentage taxes.GR 121413 and 121479 is the
case for the 1977 check and GR 128604 is the case for the 1978 and
1979 checks. All the proceeds of these checks did not reach the CIR
as they were embezzled by the syndicate. This case is about who is
negligent and therefore liable for the money embezzled.
Thus, the parties of these checks are: Ford – drawer,Citibank –
drawee/acceptor, and CIR – payee through PCIB. So Ford issues the
checks, Citibank pays to PCIB, and PCIB pays to CIR.
So summary sa ani na story. Ford issued checks para mubayad sa
iyang taxes to BIR. Pero ang mga proceeds sa checks wala jud niabot
sa BIR rather gi deposit siya into a fictitious account where gi
embezzle siya by ―the syndicate.‖ Chuy kayo sa? Anyway, the
syndicate are composed of 8 people working in a conspiracy. Mas
machuy pajud ni, these 8 people are employees and officers from
FORD, PCIB, CITIBANK, AND BIR!! They managed to steal
approximately 12 Million pesos. Literally OCEAN’S 8 OF THE
PHILIPPINES.
[FACTS]
1977 check: (GR 121413 and 121479)
Ford drew and issued a Citibank check in the amount of 4,746,114.41
pesos in favor of CIR. The check was deposited with the IBAA, now
PCIB, BIR‘s authorized collecting bank. It was cleared by the Central
Bank and the proceeds of the check was paid to PCIB by Citibank.
However, the proceeds was never received by the CIR.
Citibank admitted that the check was a crossed check, which contains
the phrase ―Payee‘s Account Only.‖ Citibank admitted that it paid the
full face value of the check to PCIB but was never received by the CIR.
In fact, when it was deposited with PCIB, there is an indorsement at
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MIDTERMS: NEGOTIABLE INSTRUMENTS
the back stating,"all prior indorsements and/or lack of indorsements
guaranteed." Ford was informed by the CIR that the check was not
paid to the government but was in fact encashed by unauthorized
persons. Thus, Ford has to make a second payment to the BIR.
Thus, as a consequence of the respondents‘ refusal to reimburse Ford
for the 2nd payment, the latter filed a complaint before the Court.
After an investigation by the NBI, it revealed that the check was
recalled by Godofredo Rivera, the general ledger accountant of Ford.
According to the investigation, it said that Rivera had to recall the
checks due to errors in the computation, and that he wants to replace
the check with 2 manager‘s checks wherein the syndicate then
deposited it with the Pacific Banking Corporation.
[LOWER COURT’S RULING] (1977 check)
TC: rendered a decision in favor of Ford. Ordered Citibank and PCIB
to solidarily pay Ford the amount of the check.
Respondents petitioned for review on certiorari with CA.
CA: affirms the decisions with modification. Absolved Citibank from
any liability, only ordered PCIB to pay Ford. PCIB moved to reconsider
but was denied. Hence this petition.
PCIB sought for reversal of decision in the case GR 121413. Ford filed
a counter move, seeking to reinstate the decision by the TC in toto
which found PCIB and Citibank solidarily liable for the loss in the case
of GR 121479.
[FACTS]1978 and 1979 checks: (GR 128604)
The same syndicate embezzled the subject checks. Kayatachuya.
Ford drew and issued 2 Citibank checks on 1978 in the amount of
P5,851,706.37 and on 1979 in the amount of P6,311591.73 payable to
CIR. BIR Revenue Tax Receipt was issued for both. Similarly, both
checks were crossed checks with written words ―payable to the
payee‘s account only.‖
Checks never reached the payee. Then again, CIR asked for
payments from Ford. BIR considered the revenue tax receipts as fake
and spurious. These fakeness of these receipts were confirmed by NBI
and as a result Ford is again forced to pay BIR anew.
Ford again filed a case for recovery against Citibank and PCIB. So
during trial, the RTC found out the modus operandi of the syndicate:
brief summary rani sailang modus.
So Rivera, as general ledger accountant of Ford, prepares the checks.
However, instead of delivering the check to the payee, he passed the
check to Castro (PCIB San Andres branch manager) and Dulay (PCIB
Meralco branch assistant manager), they coursed the check to a
fictitious account of ‗Reynaldo Reyes.‘ This is done by depositing a
worthless Bank of America check in exactly the same amount of the
Ford checks and tampering them so that the worthless checls are
replaced by the Ford checks. From that account, Castro drew checks
distributing the shares to the 8 conspirators. Naa pay mga syndicate
nawalana implead.
Okay so remember, the syndicate is within all these companies. So if
you’re wondering, ―ngano weird girecal lsa Ford ang Check? Ford’s
accountant and assistant niya kay syndicate.; ngano Maclear man ang
checks sa PCIB? Managers sa PCIB kay syndicate.; ngano niissue
man ug receipt si BIR nawala man sila kadawat sa proceeds sa
check? BIR collection agent kay syndicate. Amazing diba?
[LOWER COURT’S RULING] (1978 and 1979 checks)
RTC: rendered a decision in favor of Ford. Held that only Citibank is
liable. Both Ford and Citibank appealed to the CA.
CA: Affirms the decision in toto. Hence ,this petition.
Ford prays that both Citibank and PCIB should be liable.
[ISSUE/S]
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
WON Ford has the right to recover from the collecting bank (PCIB
and the drawee bank (Citibank) the value of the checks intended
as payment to the CIR. (related sa topic)
WON Ford’s action has prescribed.
So pagabotsa SC, they blamed each other kung kinsay negligent. Diba
their employees and officers kay members sa syndicate, so they
blamed each other for being unaware samga modus sailang
employees. Grabe ang pointing fingers anina case. So it all boils down
to the question of liability based on the degree of negligence among
the parties.
[HELD] (degree of negligence among parties):
Ford: Citibank and PCIB blames Ford of negligence as it allowed its
own employee, Rivera, to negotiate the checks to his co-conspirators,
instead of delivering them to the payee. They contend that Ford should
have performed more diligence as such transactions contains
enormous amount of money. They say that Ford is the proximate
cause of the damage as they fail to check their own employees.
Ford avers that there was no evidence presented before the TC
showing lack of diligence. Ford claims that respondents raised the
issue of negligence for the first time on appeal. Moreover, Ford adds
that Rivera was not authorized to make any representation in its
behalf.
SC said that Ford‘s negligence is not the proximate cause of the loss.
Proximate cause is that which, in the natural and continuous
sequence, unbroken by any efficient, intervening cause produces the
injury, and without which the result would not have occurred. Since,
alone, they could not have done the embezzlement, then, Ford‘s
negligence is not the proximate cause.
PCIB: PCIB failed to verify the authority of Mr. Rivera to negotiate the
checks. Thus, it showed lack of care and prudence required in the
circumstances. (Diba Rivera asked PCIB to convert them to manager’s
checks.) As agent of BIR, PCIB is duty bound to consult its principal
regarding the unwarranted instructions given by the payor or its agent.
Citibank argues that PCIB‘s clearing stamp appearing at the back
stating that ―all prior indorsements and/or lack of indorsements
guaranteed," should render PCIB liable as it made it pass through the
clearing house and therefore Citibank had no other option but to pay it.
Thus, Citibank avers that PCIB is the proximate cause of Ford‘s injury.
Sc said, the crossing of the check with the phrase "Payee's Account
Only," is a warning that the check should be deposited only in the
account of the CIR. Thus, it is the duty of PCIBank to ascertain that the
check be deposited in payee's account only. Therefore, it is the
collecting bank (PCIBank) which is bound to scrutinize the check and
to know its depositors before it could make the clearing indorsement
"all prior indorsements and/or lack of indorsement guaranteed".
Thus, one who encashed a check which had been forged or diverted,
is guilty of negligence which proximately contributed to the success of
the fraud.As a general rule, a banking corporation is liable for the
wrongful or tortuous acts and declarations of its officers or agents
within the course and scope of their employment. A bank will be held
liable for the negligence of its officers or agents when acting within the
course and scope of their employment.
Having established that the collecting bank‘s negligence is the
proximate cause of the loss, we conclude that PCIB is liable since it
was Castro and Dulay, managers of PCIB helped open the account of
Reyes, a fictitious person, deposited a worthless Bank of America
Check in the same amount of the Ford checks, and tampered with the
checks and succeeded in replacing the worthless checks and the
encashment of the same.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
Citibank: Evidence shows that Citibank was likewise negligent in the
performance of its duties. Citibank failed to establish that its payment
of Ford‘s checks were made in due course and legally in order.
Ford cited Sec. 62 of NIL that by accepting the instrument, the
acceptor which is Citibank engages that it will pay according to the
tenor of its acceptance, and that it will pay only to the payee, (the CIR),
considering the fact that here the check was crossed with annotation
"Payees Account Only."
Thus, Citibank should have scrutinized the check before paying the
amount of the proceeds thereof to the BIR. In the clearing stamps by
the PCIB, said stamps does not bear any initials. Citibank failed to
notice and verify the absence of the clearing stamps. If these was
examined, the switching of the worthless checks would have been
discovered in time.
The fact that the drawee bank did not discover the irregularity
seasonably, in our view, constitutes negligence in carrying out the
bank's duty to its depositors. The point is that as a business affected
with public interest and because of the nature of its functions, the bank
is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their
relationship.
Ford, PCIB and Citibank liability: Thus, invoking the doctrine of
comparative negligence, we are of the view that both PCIBank and
Citibank failed in their respective obligations and both were negligent in
the selection and supervision of their employees resulting in the
encashment of Citibank Check Nos. SN 10597 and 16508. Thus, we
are constrained to hold them equally liable for the loss of the proceeds
of said checks issued by Ford in favor of the CIR.
However, Ford is not completely blameless in its failure to detect the
fraud. Failure on the part of the depositor to examine its passbook,
statements of account, and cancelled checks and to give notice within
a reasonable time (or as required by statute) of any discrepancy which
it may in the exercise of due care and diligence find therein, serves to
mitigate the banks' liability by reducing the award of interest from
twelve percent (12%) to six percent (6%) per annum.
Issue on prescription: (not related)
PCIB claims that the act took place on 1977 but relief was sought in
1983 (7 years later).
Under Statute of Limitations: begins to run when the bank gives the
depositor notice of the payment, which is when the check is returned to
the alleged drawer as a voucher with a statement of his account.
Under the law: action upon a written contract must be brought within
10 years from the time of the right of action accrues.
In the case: Action accrues on Dec. 19, 1977. Complaint filed on Jan.
20, 1983, (6 years had lapsed). Thus, it was seasonably filed.
[FALLO]
Assailed decision is affirmed. PCIB and Citibank must share the loss
on a 50/50 ratio, and each bank is ordered to pay Ford with 6% interest
thereon.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
WESTMONT BANK vs. EUGENE ONG
| G.R. No. 132560 | January 30, 2002
TOPIC FROM THE SYLLABUS: Forgery and Material Alteration –
As a general rule, a bank or corporation who has obtained possession
of a check upon an unauthorized or forged indorsement of the payee's
signature and who collects the amount of the check from the drawee,
is liable for the proceeds thereof to the payee or other owner,
notwithstanding that the amount has been paid to the person from
whom the check was obtained.
FACTS:
Respondent Eugene Ong maintained a current account with petitioner,
formerly the Associated Banking Corporation, but now known as
Westmont Bank. Sometime in May 1976, he sold certain shares of
stocks through Island Securities Corporation. To pay respondent Ong,
Island Securities purchased two (2) Pacific Banking Corporation
manager's checks, both dated May 4, 1976, issued in the name of
Eugene Ong as payee.
However, before Ong could get hold of the checks, his friend Faciano
Tanlimco got hold of them, forged Ong's signature and deposited these
with petitioner, where Tanlimco was also a depositor. Even though
Ong's specimen signature was on file, petitioner accepted and credited
both checks to the account of Tanlimco, without verifying the
'signature indorsements' appearing at the back thereof. Tanlimco
then immediately withdrew the money and absconded.
Instead of going straight to the bank to stop or question the payment,
Ong first sought the help of Tanlimco's family to recover the amount.
Later, he reported the incident to the Central Bank, which like the first
effort, unfortunately proved futile.
It was only on October 7, 1977, about five (5) months from discovery of
the fraud, did Ong cry foul and demanded in his complaint that
petitioner pay the value of the two checks from the bank on whose
gross negligence he imputed his loss. In his suit, he insisted that he did
not "deliver, negotiate, endorse or transfer to any person or entity" the
subject checks issued to him and asserted that the signatures on the
back were spurious.
The bank did not present evidence to the contrary, but simply
contended that since plaintiff Ong claimed to have never received the
originals of the two (2) checks in question from Island Securities, much
less to have authorized Tanlimco to receive the same, he never
acquired ownership of these checks. Thus, he had no legal personality
to sue as he isnot a real party-in-interest. The bank then filed a
demurrer to evidence which was denied.
LOWER COURTS’ RULING
RTC – ruled in favor of Ong and ordered Westmont Bank to pay him
the amount of the manager‘s checks with legal interest plus moral and
exemplary damages.
CA – affirmed RTC‘s decision
Petitioner’s Contention:
 Since respondent admitted that he was never in actual or
physical possession of the two (2) checks of the Island
Securities nor did he authorize Tanlimco or any of the latter's
representative to demand, accept and receive the same,
petitioner arguesthat respondent cannot sue petitioner
because under Section 51 of the Negotiable Instruments
Law, it is only when a person becomes a holder of a
negotiable instrument can he sue in his own name.
 It is petitioner's position that for all intents and purposes,
Island Securities has not yet tendered payment to
respondent Ong, thus, any action by Ong should be directed
towards collecting the amount from Island Securities.
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25 / 36
MIDTERMS: NEGOTIABLE INSTRUMENTS
 Petitioner claims that since there was no delivery yet and
respondent has never acquired possession of the checks,
respondent's remedy is with the drawer (Island Securities)
and not with petitioner bank.
ISSUE: WON petitioner, as the collecting bank, grossly erred in
making payment by virtue of said forged signature.
HELD: Yes. Under Section 23 of the Negotiable Instruments Law:
―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 the signature of the payee, in the case at bar, was forged to
make it appear that he had made an endorsement in favor of the
forger, such signature should be deemed as inoperative and
ineffectual. Petitioner, as the collecting bank, grossly erred in making
payment by virtue of said forged signature. The payee, herein
respondent, should therefore be allowed to recover from the collecting
bank.
The collecting bank is liable to the payee and must bear the loss
because it is its legal duty to ascertain that the payee's endorsement
was genuine before cashing the check. As a general rule, a bank or
corporation who has obtained possession of a check upon an
unauthorized or forged indorsement of the payee's signature and who
collects the amount of the check from the drawee, is liable for the
proceeds thereof to the payee or other owner, notwithstanding that the
amount has been paid to the person from whom the check was
obtained.
The theory of the rule is that the possession of the check on the forged
or unauthorized indorsement is wrongful, and when the money had
been collected on the check, the bank or other person or corporation
can be held as for moneys had and received, and the proceeds are
held for the rightful owners who may recover them. The position of the
bank taking the check on the forged or unauthorized indorsement is
the same as if it had taken the check and collected the money without
indorsement at all and the act of the bank amounts to conversion of the
check.
(Not sure if this is relevant to the topic of forgery but I noticed it
was quoted in the book of De Leon…so..)
Petitioner's claim that since there was no delivery yet and respondent
has never acquired possession of the checks, respondent's remedy is
with the drawer and not with petitioner bank. Petitioner relies on the
view to the effect that where there is no delivery to the payee and no
title vests in him, he ought not to be allowed to recover on the ground
that he lost nothing because he never became the owner of the check
and still retained his claim of debt against the drawer. However,
another view in certain cases holds that even if the absence of
delivery is considered, such consideration is not material. The
rationale for this view is that in said cases the plaintiff uses one action
to reach, by a desirable short cut, the person who ought in any event to
be ultimately liable as among the innocent persons involved in the
transaction. In other words, the payee ought to be allowed to recover
directly from the collecting bank, regardless of whether the check was
delivered to the payee or not. Considering the circumstances in this
case, in the Court‘s view, petitioner could not escape liability for its
negligent acts.
Thus, petition is DENIED for lack of merit.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
O.
MATERIAL ALTERATION
Sec. 124. Alteration of instrument; effect of. - Where a negotiable
instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has himself made,
authorized, or assented to the alteration and subsequent indorsers. But
when an instrument has been materially altered and is in the hands of
a holder in due course not a party to the alteration, he may enforce
payment thereof according to its original tenor.
Sec. 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
What is a material alteration?
Material alteration is defined to be any change in the instrument which
affects or changes the liability of the parties in any way, as specified in
Sec. 125 or changes the contract of the parties in any respect.
Any change, addition, substitution or erasure which alters the effect of
the instrument is a material alteration.
In material alteration, it presupposes that the instrument is complete,
as opposed to Section 14 of the NIL wherein the instrument is
presumed to be lacking or incomplete.
The effect of a material alteration by the holder is to discharge the
instrument and all prior parties thereto who did not give their consent to
such alteration.
What are the liabilities of parties in material alteration?
John issued a promissory note in the amount of Php5,000.00 payable
to the order of Anthony, the payee. Anthony negotiated to Mario who
convinced Anthony that he be allowed to change the amount to
Php15,000.00 so he can pay his debt to Janet. Thereafter, Mario
negotiated to Janet, Janet to Charie, the holder.
Can the holder go against Janet?
Yes, because Janet is a subsequent indorser. As such, Janet warrants
that the instrument is what it purports to be and that it is valid and
subsisting. Thus, Janet is estopped from denying the validity of the
instrument.
Can the holder go against Mario?
Yes, because Mario was the one who altered the instrument; and also
because of his warranties as a general indorser.
Can the holder go against Anthony?
Yes, because Anthony assented to the alteration; and also because of
his warranties.
Can the holder go against John?
It depends on whether Charie is a holder in due course or not. If Charie
is not a holder in due course, the instrument is avoided as to her.
Hence, Charie cannot go against John. However, if Charie is a holder
in due course, Charie may enforce the instrument according to its
original tenor. Hence, Charie may go after John but only for
Php5,000.00, the original tenor of the instrument.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
P.
RULES OF INTERPRETATION IN CASE OF AMBIGUITY
Sec. 17. Construction where instrument is ambiguous. — Where
the language of the instrument is ambiguous, or there are omissions
therein, the following rules of construction apply:
(a) Where the sum payable is expressed in words and also in figures
and there is a discrepancy between the two, the sum denoted by the
words is the sum payable; but if the words are ambiguous or uncertain,
reference may be had to the figures to fix the amount;
(b) Where the instrument provides for the payment of interest, without
specifying the date from which interest is to run, the interest runs from
the date of the instrument, and if the instrument is undated, from the
issue thereof;
(c) Where the instrument is not dated, it will be considered to be dated
as if the time it was issued;
(d) Where there is a conflict between the written and printed provisions
of the instrument, the written provisions prevail;
(e) Where the instrument is so ambiguous that there is doubt whether it
is a bill or note, the holder may treat it as either at his election;
(f) Where a signature is so placed upon the instrument that it is not
clear in what capacity the person making the same intended to sign, he
is to be deemed an indorser;
(g) Where an instrument containing the words "I promise to pay" is
signed by two or more persons, they are deemed to be jointly and
severally liable thereon.
Rules of construction in case of ambiguity or omission.
1. Sums expressed in words and in figures different. — When there is
a discrepancy between the sum expressed in words and the sum
expressed in figures, the former controls.
2. Words ambiguous or uncertain. — Words outweigh figures.
However, when the words are ambiguous or uncertain, reference may
be had to the figures to determine the true amount. (If a check bears
the figures "P365.00" and the amount written is "three sixty five pesos,"
the marginal figures control.)
3. Date when stipulated interest to run not specified. — If the date
when the stipulated interest is to run is not specified, the interest runs
from the date of the instrument or if undated, from the date of
issue.
4. Instrument undated. — An undated instrument is considered dated
as of the date of its issue.
What is meant by issue? It means the first delivery of the instrument
complete in form, to a person who takes it as holder. The date
appearing in the instrument is deemed prima facie the true date of its
issue acceptance, or indorsement.
If the promissory note has no date but it was delivered to the payee on
October 15,2010, then the note will be considered dated as of the
same time.
5. Written and printed provisions in conflict. — In case of conflict
between the written and printed provisions, the former (written)
prevail.
6. Whether instrument bill or note in doubt. — In case of doubt as
to whether an instrument is a bill or note, the holder may treat either
at his election.
7. Capacity in which person signed in doubt.—In case of doubt as
to what capacity the person making the instrument intended to sign, he
is to be deemed an indorser.
8. Instrument signed by two or more persons. — An instrument with
the words "I promise to pay" signed by two or more persons gives
rise to solidary liability.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
What does solidary (joint and several) liability mean? This means
that anyone of the signers may be held liable for the whole amount of
the instrument. (Manifestations: "I, we, or either or us promise to pay."
How about the phrase, ―We promise to pay‖?
"We promise to pay" signed by two makers imparts only joint liability.
In a joint obligation, there are as many debts as there are debtors,
each debt being considered distinct and separate from each other.
Thus, if the amount of the instrument is P4,000.00 and there are four
makers, there are four separate debts. Hence, each is liable only for
P1,000.00 to the holder.
SPOUSES EVANGELISTA V. MERCATOR FINANCE
CORPORATION
I G.R. NO. 148864 I AUGUST 21, 2003
FACTS:
Petitioners filed a complaint for annulment of titles against
respondents, Mercator Finance Corporation, Lydia P. Salazar, Lamecs
Realty and Development Corporation, and the Register of Deeds of
Bulacan. Petitioners claimed being the registered owners of five (5)
parcels of land2 contained in the Real Estate Mortgageexecuted by
them and Embassy Farms, Inc. (Embassy Farms). They alleged that
they executed the Real Estate Mortgage in favor of Mercator only as
officers of Embassy Farms. They did not receive the proceeds of the
loan evidenced by a promissory note, as all of it went to Embassy
Farms. Thus, they contended that the mortgage was without any
consideration as to them since they did not personally obtain any loan
or credit accommodations. There being no principal obligation on
which the mortgage rests, the real estate mortgage is void. With the
void mortgage, they assailed the validity of the foreclosure proceedings
conducted by Mercator, the sale to it as the highest bidder in the public
auction, the issuance of the transfer certificates of title to it, the
subsequent sale of the same parcels of land to respondent Salazar,
and the transfer of the titles to her name, and lastly, the sale and
transfer of the properties to respondent Lamecs.
Mercator admitted that petitioners were the owners of the subject
parcels of land. It, however, contended that on February 16, 1982,
plaintiffs executed a Mortgage in favor of defendant Mercator Finance
Corporation for and in consideration of certain loans, and/or other
forms of credit accommodations obtained from the Mortgagee. It
contended that since petitioners and Embassy Farms signed the
promissory note6 as co-makers, aside from the Continuing Suretyship
Agreement subsequently executed to guarantee the indebtedness of
Embassy Farms, and the succeeding promissory notes8restructuring
the loan, then petitioners are jointly and severally liable with Embassy
Farms. Due to their failure to pay the obligation, the foreclosure and
subsequent sale of the mortgaged properties are valid.
Respondents Salazar and Lamecs asserted that they are
innocent purchasers for value and in good faith, relying on the validity
of the title of Mercator. Lamecs admitted the prior ownership of
petitioners of the subject parcels of land, but alleged that they are the
present registered owner. Both respondents likewise assailed the long
silence and inaction by petitioners as it was only after a lapse of almost
ten (10) years from the foreclosure of the property and the subsequent
sales that they made their claim. Thus, Salazar and Lamecs averred
that petitioners are in estoppel and guilty of laches.
After pre-trial, Mercator moved for summary judgment on the
ground that except as to the amount of damages, there is no factual
issue to be litigated. Mercator argued that petitioners had admitted in
their pre-trial brief the existence of the promissory note, the continuing
suretyship agreement and the subsequent promissory notes
restructuring the loan, hence, there is no genuine issue regarding their
liability. The mortgage, foreclosure proceedings and the subsequent
sales are valid and the complaint must be dismissed.
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LOWER COURT’S RULING:
RTC- granted the motion for summary judgment and dismissed the
complaint
CA- upheld RTC‘s decision. It is crystal clear then that the plaintiffs-
spouses signed the promissory note not only as officers of Embassy
Farms, Inc. but in their personal capacity as well therefore, they have
dual capacity as solidary debtor(s) with Embassy Farms, Inc. to pay
defendant Mercator Finance Corporation the amount of indebtedness.
ISSUE: Whether or not the plaintiffs are jointly and severally liable with
Embassy Farms for the payment of the loans.
HELD:
YES. It was provided in the promissory note which contained the
signatures of the plaintiffs together with the Embassy Farm. Petitioners
further allege that there is an ambiguity in the wording of the
promissory note and claim that since it was Mercator who provided the
form, then the ambiguity should be resolved against it.Courts can
interpret a contract only if there is doubt in its letter.But, an
examination of the promissory note shows no such ambiguity.
Petitioners also insist that the promissory note does not convey
their true intent in executing the document. The defense is unavailing.
Even if petitioners intended to sign the note merely as officers of
Embassy Farms, still this does not erase the fact that they
subsequently executed a continuing suretyship agreement. A surety is
one who is solidarily liable with the principal.
RATIO:
The agreement was signed by petitioners and the promissory notes
subsequently executed by petitioners and Embassy Farms,
restructuring their loan, likewise prove that petitioners are solidarily
liable with Embassy Farms.
PHILIPPINE NATIONAL BANK vs.
CONCEPCION MINING COMPANY, INC., ET AL.,
G.R. No. L-16968 July 31, 1962
[FACTS]
The present action was instituted by PNB to recover from Concepcion
Mining the face of a promissory note. Concepcion Mining alleged that
the co-maker the promissory note Don Vicente L. Legarda died on
February 24, 1946 and his estate is in the process of judicial
determination. On the basis of this allegation it is prayed, as a special
defense, that the estate of said deceased Vicente L. Legarda be
included as party-defendant.
CFI ruled the inclusion of said defendant is unnecessary and
immaterial.
[ISSUES]
WON the failure to include the co-maker as a party is fatal to the action
[HELD] No. Section 17 (g) of the Negotiable Instruments Law provides
as follows:
SEC. 17.Construction where instrument is ambiguous. — Where the
language of the instrument is ambiguous or there are omissions
therein, the following rules of construction apply:
(g) Where an instrument containing the word "I promise to pay" is
signed by two or more persons, they are deemed to be jointly and
severally liable thereon.
In view of the above quoted provisions, and as the promissory note
was executed jointly and severally by the same parties, namely,
Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S.
Sarte, the payee of the promissory note had the right to hold any one
or any two of the signers of the promissory note responsible for the
payment of the amount of the note. This judgment of the lower court
should be affirmed.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
IV.
CONSIDERATION
A.
DEFINITION OF CONSIDERATION
Sec. 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.
Meaning of Consideration
It means an inducement to a contract, that is, the cause, price or
impelling influence which induces a contracting party to enter into a
contract.
It is the essential or more proximate purpose a party has in view at the
time of entering into the contract.
Is it synonymous with motive?
No, it is different from motive which is the personal or private reasons
of a party in entering into a contract.
B.
PRESUMPTION OF CONSIDERATION
Should consideration be expressly stated in the instrument?
No, the presumption is that the instrument has been issued for a
valuable consideration and that every person whose signature appears
thereon has become a party thereto for value, whether the words
"value received" appear in it or not.
Consideration being presumed, it need not be alleged and proved, but
the presumption is only prima facie. It may, therefore, be rebutted by
evidence to the contrary (Pineda vs. De La Rama).
PINEDA V. DELA RAMA
| G.R. No. L-31831 | APRIL 28, 1983
[TOPIC FROM THE SYLLABUS]
PRESUMPTION OF CONSIDERATION: The presumption that a
negotiable instrument is issued for a valuable consideration is
only prima facie. It can be rebutted by proof to the contrary.
[FACTS]
Pineda was alleged to have misappropriated 11,000 cavans of palay
owned by National Rice and Corn Administration (NARIC) which was
deposited at his ricemill in Tarlac. Thus, Dela Rama‘s (a lawyer)
services were retained by Pineda for the purpose of making
representations with the chairman and general manager of NARIC to
delay or stop the institution of criminal charges against Pineda.
Dela Rama instituted a civil case for collection against Pineda claiming
that Pineda borrowed P9,300 from him evidenced by a matured
promissory note. Dela Rama said that he loaned the P9,300 in 2
installments. 1st loan for P5k and 2ndloand for P4,300.
Pineda avers that he signed the promissory note only because Dela
Rama had told him that this amount had already been advanced to
grease the palms of the Chairman and General Manager of NARIC in
order to save Pineda from prosecution.
[LOWER COURT’S RULING]
CIF: decided in favor of Pineda. Pineda has established that Dela
Rama made him believe that he was giving money to the authorities of
NARIC to grease their palms but upon inquiry found out that none of
the authorities has received that amount. Since it was not received by
the authorities, it clearly follows that the amount involved was
imaginary. The purpose of which was intended to be illegal.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
Pineda thought nanangutangsiyaniDela Rama para ibribesa NARIC.
Pero, wala man diaygihatagniDelaRamasa NARIC ang money so
anasi Pineda namura rag walakonagutang kay wala man
siyanipagawasugkwarta. Dela Rama nuonavers Sec. 24 sa NIL,
presumed ang consideration, bayarikosaimogiutang.
CA: reversed the decision of CIF. CA said that Pineda, being a person
of average intelligence, astute in business, and wise would not sign
any document or paper unless he was fully aware of the importance
thereof. Sec. 24 of NIL provides that every negotiable instrument is
deemed prima facie to have been issued for a valuable consideration
and every person whose signature appear on the instrument become a
party thereto. Hence, this petition.
[ISSUE/S]
WON the promissory note has been issued for a valuable
consideration.
[HELD]
NO! The presumption that a negotiable instrument is issued for a
valuable consideration is only prima facie. It can be rebutted by proof
to the contrary. The terms of the note was for gifts for NARIC officials.
Thus, the note was executed for an illegal consideration.
Art. 1409. The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law, morals,
good customs, public order and public policy;
xxx xxxxxx
Art. 1412. If the act in which the unlawful or forbidden cause consists
does not constitute a criminal offense, the following rules shall be
observed:
(1) When the fault is on the part of both contracting parties, neither
may recover what he has given by virtue of the contract, or demand
the performance of the other's undertaking.
WON the cash advances reached the NARIC officials is of no moment.
The consideration is contrary to law and policy thus, they are void ab
initio and no cause of action for the collection cases can arise from it.
Case is dismissed.
TRAVEL-ON VS CA
G.R. No. 56169. June 26, 1992
It is important to stress that a check which is regular on its face is
deemed prima facie to have been issued for a valuable consideration
and every person whose signature appears thereon is deemed to have
become a party thereto for value.
xxx
A negotiable instrument is presumed to have been given or indorsed
for a sufficient consideration unless otherwise contradicted and
overcome by other competent evidence.
FACTS: Petitioner Travel-On, Inc. ("Travel-On") is a travel agency
selling airline tickets on commission basis for and in behalf of different
airline companies. Private respondent Arturo S. Miranda had a
revolving credit line with petitioner. He procured tickets from petitioner
on behalf of airline passengers and derived commissions therefrom.
On June 14, 192, Travel-On filed a suit before CFI Manila to collect 6
checks issued by Miranda with a face value of P115,000.00. The
complaint prayed for the issuance of a writ of preliminary attachment
and attorney‘s fees. Miranda apparently issued the 6 postdated checks
in payment of purchase of several airline tickets, but when Travel On
encashed the said checks, all were dishonored by the drawee banks.
Miranda however claimed that he had already fully paid and even
overpaid his obligations and that refunds were in fact due to him. He
argued that he had issued the postdated checks for purposes of
accommodation, as he had in the past accorded similar favors to
petitioner. Supporting his theory, Miranda testified that he had issued
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
the checks in the name of Travel On so that its General Manager, Elita
Montilla, can show to Travel On‘s BOD that the receivables were still
good.
Lower Court: Ordered Travel-On to pay Miranda. The latter‘s
indebtedness to petitioner was not satisfactorily established and that
the postdated checks were issued not for the purpose of encashment
to pay his indebtedness but to accommodate the General Manager of
Travel-On.
CA: Affirmed.
Before the SC, it is urged that the postdated checks are per se
evidence of liability on the part of private respondent. Petitioner further
argues that even assuming that the checks were for accommodation,
private respondent is still liable thereunder considering that petitioner is
a holder for value.
ISSUE: W/N the checks represent Miranda’s indebtedness.
HELD: Yes. CA’s decision reversed.
The appellate court erred in considering only the statements of account
in determining whether private respondent was indebted to petitioner
under the checks. By doing so, it failed to give due importance to the
most telling piece of evidence of private respondent's indebtedness —
the checks themselves which he had issued. This Court finds that the
checks are the all important evidence of petitioner's case; that these
checks clearly established private respondent's indebtedness to
petitioner; that private respondent was liable thereunder.
It is important to stress that a check which is regular on its face is
deemed prima facie to have been issued for a valuable consideration
and every person whose signature appears thereon is deemed to have
become a party thereto for value. Thus, the mere introduction of the
instrument sued on in evidence prima facie entitles the plaintiff to
recovery. Further, the rule is quite settled that a negotiable
instrument is presumed to have been given or indorsed for a
sufficient consideration unless otherwise contradicted and
overcome by other competent evidence.
Who has the burden of proof to prove that the checks were
without sufficient consideration?
It was Miranda, not petitioner. The Court of Appeals, contrary to these
established rules, placed the burden of proving the existence of
valuable consideration upon petitioner. This cannot be countenanced;
it was up to private respondent to show that he had indeed issued the
checks without sufficient consideration. The Court considers that
private respondent was unable to rebut satisfactorily this legal
presumption.
Was Travel-on an Accomodated Party?
No. In accommodation transactions recognized by the NIL, an
accommodating party lends his credit to the accommodated party, by
issuing or indorsing a check which is held by a payee or indorsee as a
holder in due course, who gave full value therefor to the
accommodated party. But the accommodating party is bound on the
check to the holder in due course who is necessarily a third party and
is not the accommodated party. Having issued or indorsed the check,
the accommodating party has warranted to the holder in due course
that he will pay the same according to its tenor. Travel-On was payee
of all six (6) checks; it presented these checks for payment at the
drawee bank but the checks bounced. Travel-On obviously was
not an accommodated party; it realized no value on the checks
which bounced.
Conclusion: Thus, we believe and so hold that private respondent
must be held liable on the six (6) checks here involved. Those checks
in themselves constituted evidence of indebtedness of private
respondent, evidence not successfully overturned or rebutted by
private respondent.
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C.
DEFINITION OF A VALUABLE CONSIDERATION
Value
Sec. 25. Value, what constitutes. — Value Is any consideration
sufficient to support a simple contract. An antecedent or pre-existing
debt constitutes value; and is deemed such whether the instrument is
payable on demand or at a future time.
(1) Value means valuable consideration.
(2) Valuable consideration may "in general terms be said to consist
either in some right, interest, profit or benefit accruing to the party who
makes the contract, or some forbearance, detriment, loss,
responsibility, act, labor or service, on the other side. And if any of
these exists, it will furnish a sufficient consideration to sustain the
making or indorsing of a promissory note in favor of the payee or
other holder."
(3) Simply defined, consideration means any prestation sufficient to
support any contract in favor of the party to an instrument, such as the
maker or indorser, and it may consist in giving, doing, or not doing.
How about love, is it a consideration?
No, a consideration, founded on mere love, affection, or gratitude is
not sufficient to sustain an action on a note or bill, as for example,
when an instrument is made or accepted by a parent in favor of a child,
the same cannot be enforced as between the original parties.
ADEQUACY OF THE CONSIDERATION
A valuable consideration need not be adequate. It is sufficient if it is a
valuable one.
Example: P sells to M a piano worth P9,000. M issues to a promissory
note for P10,000, there is a valuable consideration for the note, which
is the piano.
Can M allege as a defense the inadequacy of consideration?
No, the law presumes M is capable of managing his affairs, and the
mere indadequacy of the consideration is not a sufficient ground for
relief unless there‘s (FUM) fraud, undue influence, or mistake.
Can a debt be a valuable consideration?
Yes, may it be an antecedent or pre-existing debt. It may even be from
a debt of a third person; or even such instrument is payable on
demand, or at a future time.
What is the requirement for a debt to be a valuable consideration?
It must be shown however, that the creditor or holder of the debt has
given up the preexisting debt or the right to sue.
Benefit of treating a debt as consideration
The transfer of negotiable instruments not only as security for new
purchases and advances, made upon the transfer thereof but also as
security for antecedent debts has become very common in the
commercial world. Such transactions contribute largely to the benefit
and convenience both of debtors and creditors. The creditor is thereby
enabled to realize or to secure his debt, and thus may safely give a
prolonged credit, or forbear from taking any legal steps to enforce his
rights. The debtor has also the advantage of making his negotiable
paper of equivalent value to cash.
Illustrations:
I owe You P1,000 payable today. However, I failed to pay in cash. I
then issue a check for P1,000 to You. You accepts the check. Here,
the consideration of the check is my preexisting debt to You.
Consequently, if my friend, RJ is the debtor in the preceding situation,
and RJ fails to pay You, then the note I issued in favor of You for the
benefit of RJ rests on a sufficient consideration, the pre existing debt of
RJ.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
D.
ABSENCE, LACK, OR FAILURE OF CONSIDERATION
Sec. 28. Effect of want of consideration. — Absence or failure of
consideration is a matter of defense as against any person not a holder
in due course; and partial failure of consideration is a defense pro
tanto, whether the failure is an ascertained and liquidated amount or
otherwise.
What is the effect of absence of consideration?
Absence of consideration means a total lack of any valid consideration
for the contract, in consequence of which the alleged contract must fall.
M makes a promissory note to P in payment for a parcel of land
which does not exist. What is the effect?
As between the parties, there can be no recovery on the note as there
is absence of consideration. But if P indorses the note to A, a holder in
due course, A can recover from M because absence of consideration
is only a personal defense not available against a holder in due course.
Failure of Consideration
It means the failure or refusal of one of the parties to do, perform or
comply with the consideration agreed upon. In other words, something
was agreed upon as consideration but for some cause, such agreed
consideration failed to materialize.
Absence vs Failure of consideration
Failure is mere refusal of an existing consideration.
But under Sec 28, since the wording used is ABSENCE OR FAILURE,
a consideration is a matter of defense as against.
Can a HDC demand payment based on Sec 28? YES.
But if you are NOT a HDC- you cannot demand based on Sec 28.
DEFENSE PRO TANTO (Partial)
In the example given, if there is really a land owned by P which was
sold, but P failed to deliver it to M because he sold it again to X who in
good faith registered the sale, there is a failure of consideration so that
P cannot recover from M.
If only 2/3 portion of the land was delivered, there would be a partial
failure of consideration which would bar recovery Only pro tanto.
Hence, P could recover only 2/3 of the note as M is not liable to the
extent of 1/3 which is the price of the undelivered portion.
HDC can collect
Not HDC, can only collect equivalent.
If not HDC cannot collect if absence of consideration is raised.
HDC: collect partial
NHDC: equivalent amount or the amount actually delivered.
PNB V. BARTOLOME PICORNELL
G.R. No. L-18915 September 26, 1922
Absence, Lack or Failure of Consideration
The drawee, by accepting unconditionally the bill, becomes liable to
the holder, and cannot allege want to consideration between him and
the drawer. The holder is a stranger as regards the transaction
between the drawer and the drawee, and if he has given value to the
drawer and has no knowledge of any equity between the drawer and
the drawee, he is in the same situation as an indorsee in good faith.
FACTS:
Bartolome Picornell, following instruction Hyndman, Tavera & Ventura,
bought in Cebu 1,735 bales of tobacco; that Picornell obtained from
the branch of the National Bank in Cebu the sum of P39,529,83, the
value of the tobacco, together with his commission. This instrument
was delivered to the branch of the National Bank in Cebu, together
with the invoice and bill of lading of the tobacco, which was shipped in
the boat Don Ildefonso, on February 27, 1920, consigned to Hyndman,
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MIDTERMS: NEGOTIABLE INSTRUMENTS
Tavera & Ventura at Manila. The invoice and bill of lading were
delivered to the National Bank with the understanding that the bank
should not deliver them to Hyndman, Tavera & Ventura except upon
payment of the bill; which condition was expressed by the well-known
formula "D/P" (documents for [against] payment).The central office of
the National bank in Manila received the bill and the aforesaid
documents annexed thereto.
The tobacco having arrived at Manila, the firm of Tambunting, owner of
the ship Don Ildefonso, that brought the shipment, requested
Hyndman, Tavera & Ventura to send for the goods, which was done by
the company without the knowledge of the National Bank which
retained and always had in its possession the invoice and bill of lading
of the tobacco, until it presented them as evidence at the trial.
Joaquin Pardo de Tavera alleged that the bill in question was without
consideration and that judgment should not have been rendered
against him. The appellant Picornell contended that it should have
been taken into account that he merely acted as an agent of Hyndman,
Tavera & Ventura in all these transactions; that the tobacco was not of
inferior quality, as alleged by the said company; that the condition
"D/P" attached to the transaction was not modified; that he had the
right to complain because the bank consented to the said company
taking possession of the tobacco before the payment of the bill; that
the bank held the tobacco as a deposit; that the bank was not
authorized to sell the tobacco, said sale not being allowed either by law
or by the circumstances; that he should not have been ordered to pay
the value of the bill without proof that he was notified of its dishonor, as
required by section 89 of the Negotiable Instruments Law.
The sum of P6,708.82, which the trial court ordered deducted from the
value of the bill of exchange, is the proceeds received by the bank
from the sale of a part of a certain quantity of tobacco shipped by
Picornell at Cebu to the Hyndman, Tavera & Ventura company at
Manila, the price of which, together with his commission, was received
by him from the branch of the plaintiff bank in Cebu, and in
consideration whereof he drew the bill in favor of the central office of
said bank in Manila and against the said Hyndman, Tavera & Ventura
company, the consignee of the tobacco.The P28,790.72, which the
defendants are sentenced to pay solidarily to the plaintiff bank,
constitutes the value of the tobacco at the date when the bill fell due,
as appraised for the purpose.
LOWER COURT’S RULING:
CFI Manila- sentenced the defendants to pay solidarily to the plaintiff
bank the sum of P28, 790.72 with interest at the rte of 9 per centum
per annum from May 3, 1921, and costs; and the defendant Bartolome
Picornell, to pay said plaintiff the sum of P10,739.11 with interest at 9
per cent per annum, all as aforesaid, deducting the sum of P6, 708.82
from such amounts to be paid by the defendants.
ISSUE: Whether Hyndman, Tavera & Ventura company can escape
liability due to want of full consideration.
HELD:
The bank was a holder in due course, and was such for value full and
complete. The Hyndman, Tavera & Ventura company cannot escape
liability in view of section 28 of the Negotiable Instruments Law.
The drawee by acceptance becomes liable to the payee or his
indorsee, and also to the drawer himself. But the drawer and acceptor
are the immediate parties to the consideration, and if the acceptance
be without consideration, the drawer cannot recover of the acceptor.
The payee holds a different relation; he is a stranger to the transaction
between the drawer and the acceptor,and is, therefore, in a legal
sense a remote party. In a suit by him against the acceptor, the
question as to the consideration between the drawer and the acceptor
cannot be inquired into. The payee or holder gives value to the drawer,
and if he is ignorant of the equities between the drawer and the
acceptor, he is in the position of a bona fide indorsee.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
RATIO:
The drawer of the bill by drawing it warrants that it will be accepted on
due presentment and paid in due course; hence if it is not paid, he
become liable for the payment of its value to the holder. The fact that
the drawer was a commission agent of the drawee in the purchase of
the merchandise covered by the bill does not necessarily make him an
agent of the drawee in his obligations emanating from the bill drawn by
him.
General Rule: Absence of consideration means a total lack of any
valid consideration for the contract, in consequence of which the
alleged contract must fall. (Sec 28)
Exception: Sec. 29, absence of consideration is not a defense. This
means that absence of consideration between the accommodation
party and the accommodated party does not of itself constitute a valid
defense against a holder for value even though he knew of it when he
became a holder.
E. HOLDER FOR VALUE
Sec. 26. What constitutes holder for value. — Where value has at
any time been given for the instrument, the holder is deemed a holder
for value in respect to all parties who become such prior to that time.
Who is a holder for value? He is one who has given a valuable
consideration for the instrument issued or negotiated to him.
What is the extent of being a holder?
The holder is deemed as such not only as regards the party to whom
value has been given by him but also in respect to all those who
became parties prior to the time when value was given.
Illustrations:
M P (without consideration)
P A (without consideration)
A B (with consideration)
Is B considered a holder in due course (HDC) to A, M, and P?
Yes. Under Sec 26 he is.
M issues a note to P, the payee, without consideration. P, also without
consideration, indorses it to A, who with value, indorses it to B.
Under Sec 26, B is considered a holder for value not only as regards A
but also as regards M and P.
If B is a holder in due course, he may enforce payment for the full
amount of the note against M, P and A.
If B is not a holder in due course, M can set up the defense of absence
of consideration.
Bank deposits are governed by the provisions on simple loan. As
creditor, the depositor does not expect to receive the identical money
in return but an equivalent sum. (see Art. 1953, ibid.) His money
becomes the money of the bank and is mingled with the other money,
the entire amount forming a single fund from which all deposits are
paid.
Where a holder has lien on instrument
Sec. 27. When lien on instrument constitutes holder for value. —
Where the holder has a lien on the instrument, arising either from
contract or by implication of law, he is deemed a holder for value to the
extent of his lien.
One who has taken a negotiable instrument as collateral security for a
debt has a lien on the instrument. As such holder of collateral security,
he would be a pledgee but the requirements therefor and the effects
thereof, not being provided for by the NIL, it shall be governed by the
provisions of the Civil Code on pledge of incorporeal rights.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
Example
M issues note to P for 100k, but P pledged note to A only for 20k.
How much can A collect from M?
A can collect the FULL AMOUTN OF 100k, A holds 20k in trust for P
because he is only a holder for value.
If the amount of the instrument is more than the debt secured by such
instrument, the pledgee is a holder for value to the extent of his lien.
He can collect the full value of the instrument, and apply the same to
the payment of the debt but he must deliver the surplus to the pledgor.
If, between the pledgor and the party liable on the instrument, there are
existing defenses, then die pledgee can collect on the instrument only
to the extent of the amount of the debt.
If the amount of the instrument is less than or the same as the debt
secured by such instrument, the pledgee is a holder for value for the
full amount and may, therefore, recover all.
If the defenses of the party liable on the instrument are real defenses,
then the pledgee can recover nothing upon the instrument.
Example
M makes a promissory note for P1,000 to the order of P who
pledges it to A to secure the payment of P's debt of P800.00. The
note is indorsed and delivered by P to A.
(1) In this case, A is a holder for value to the extent of P800.00 which
is also the extent of his lien. On the maturity of the note, even if the
debt of P800.00 is not yet due, A may recover the full amount of
P1,000.00, holding the surplus for P, the pledgor.
(2) If M has defenses against P, indorser, such as absence or failure of
consideration (Sec. 28.), A can collect only P800.00 on the note even if
he is a holder in due course. As the note in the hands of M is void, all
that ought to be recovered by A is the amount due on the loan.
(3) Supposing that the amount of the instrument is P700.00 then A is a
holder for value for the full amount of P700.00 and is entitled to recover
to that extent.
(4) If the signature of M is a forgery, A can collect nothing from M
because M's signature is inoperative. As against M, A acquired no right
to enforce payment of the note. (Sec. 23.) Forgery is a real defense
(Sec 57).
CALTEX V. CA
12 SCRA 448
(From Prelims Reviewer)
FACTS:
Security Bank and Trust Company (Security Bank), a commercial
banking institution, through its Sucat Branch issued 280 certificates of
time deposit (CTDs) in favor of one Angel dela Cruz who deposited
with herein defendant the aggregate amount of P1,120,000.00. Angel
dela Cruz delivered the said certificates of time deposit (CTDs) to
herein plaintiff, Caltex, in connection with his purchase of fuel products
from the latter. After some time, dela Cruz informed Mr. Tiangco, the
Sucat branch manager, that he lost all the certificates of time deposit .
Mr. Tiangco avised dela Cruz to execute and submit a notarized
Affidavit of Loss. Angel de la Cruz negotiated and obtained a loan from
defendant bank and executed a notarized Deed of Assignment of Time
Deposit.
Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc. went to the
defendant bank's Sucat branch and presented for verification the CTDs
declared lost by Angel dela Cruz alleging that the same were delivered
to herein plaintiff `as security for purchases made with Caltex
Philippines, Inc.' by said depositor. Caltex was requested by Security
Bank to furnish the former 'a copy of the document evidencing the
guarantee agreement with Mr. Angel dela Cruz' as well as 'the details
of Mr. Angel dela Cruz' obligations against which' plaintiff proposed to
apply the time deposits. No copy of the requested documents was
furnished so Security Bank rejected Caltex demand for payment. The
loan matured and the time deposits were terminated and then applied
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
to the payment of the loan. Petitioner demands the payment of the
certificates but to no avail.
ISSUE:
A) Whether or not the Certificates of Time Deposit (CTD) are
Negotiable Instruments.
B) Whether or not the petitioner can rightfully recover the CTDs.
HELD:
A) YES. The documents provide that the amounts deposited shall
be repayable to the depositor. The documents do not say that the
depositor is Angel de la Cruz and that the amounts deposited are
repayable specifically to him. Rather, the amounts are to be repayable
to the bearer of the documents or, for that matter, whosoever may be
the bearer at the time of presentment. If it was really the intention of
respondent bank to pay the amount to Angel de la Cruz only, it could
have with facility so expressed that fact in clear and categorical terms
in the documents, instead of having the word "BEARER" stamped on
the space provided for the name of the depositor in each CTD.
B) NO. The records reveal that Angel de la Cruz, whom petitioner
chose not to implead in this suit for reasons of its own, delivered the
CTDs amounting to P1,120,000.00 to petitioner without informing
respondent bank thereof at any time. Unfortunately for petitioner,
although the CTDs are bearer instruments, a valid negotiation thereof
for the true purpose and agreement between it and De la Cruz, as
ultimately ascertained, requires both delivery and indorsement. For,
although petitioner seeks to deflect this fact, the CTDs were in reality
delivered to it as a security for De la Cruz' purchases of its fuel
products.
F.
ACCOMODATION PARTY
Sec. 29. Liability of accommodation party. — An accommodation
party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is
liable on the instrument to a holder for value, notwithstanding such
holder at the time of taking the instrument knew him to be only an
accommodation party.
What is an accommodation bill or note?
Accommodation bill or note is one to which the accommodation party
has put his name, without consideration, for the purpose of
accommodating some other party who is to use it, and is expected to
pay it. IOW, it is a loan of one‘s credit.
Who is an accommodation party?
He is one who has signed the instrument as
1. Maker, drawer, acceptor or indorser
2. Without receiving value for the signature and
3. For the purpose of lending his name to some other person.
Who is the accommodated party?
Accommodated party is one in whose favor a person, without receiving
value therefor, signs an instrument for the purpose of lending his credit
and enabling said party to raise money upon it. (Sec. 29.) He impliedly
agrees to take up the instrument at maturity and to indemnify the
accommodation party against the consequences of non-payment.
Example:
P is in immediate need of P30,000.00 but he cannot find anybody to
lend him the sum he needs. No one trusts him because he has no
credit, and so, he goes to M, a rich relative, who is willing to
accommodate him by letting him borrow on his (M's) credit. So M signs
a promissory note payable to P, receiving no consideration therefor. P
then indorses the note to the PNB (bank) which discounts the note
because of M's credit.
Can P enforce the note against M, should P pay PNB? No, because
P gave no consideration to M and he was merely accommodated by M.
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What is the evidence to prove accommodation?
Parol evidence. [This rule prohibits any party from presenting
any evidence that will change, modify or vary an agreement which has
been reduced to writing.] If this were not so, an accommodated party
could enforce payment of the instrument against the accommodation
party.
Liability of accommodation party to a holder
1. Absence of consideration is not a defense.
Absence of consideration between the accommodation party and the
accommodated party does not of itself constitute a valid defense
against a holder for value even though he knew of it when he became
a holder (See Republic vs Ebrada).
Example
In the preceding example, the fact that M did not receive any
consideration for the note would not be a defense in an action brought
against him by PNB. This would still be true even if PNB knew that M's
signature was made for P's accommodation. If M were not to be held
liable, then the accommodation would not serve any purpose.
2. Accomodation party in effect a surety (PBCOM vs Aruego)
however, unlike a suretyship, the liability of an accommodation party
remains not only primary, but also unconditional to a holder for
value.
Rights of Accommodation Party
1. Revoke or Rescind by cancellation or by notice to those
interested
a. But once negotiated, the AP is liable.
2. Right to Reimbursement from accommodated party
3. Right to contribution from other solidary accommodation
maker.
a. This right springs from an implied promise
between the accommodation makers to share
equally the burden resulting from the execution of
the note. They are joint guarantors of the principal
debtor.
Meaning of ―without receiving value therefor‖
According to the SC, the expression, "without receiving value therefor"
only means that no value has been received for the negotiable
instrument and not "without receiving payment for lending his name."
Thus, if in the same example, M is given P1,000.00 in consideration of
lending his name but not for the promissory note he signs, M does not
lose his status as an accommodation party.
Accomodation party and regular party, distinguished
Accommodation party Regular Party
He signs an instrument without
He signs the instrument for value.
receiving value therefor.
He signs for the purpose of
lending his name to some other He does not sign for that purpose
person
He may always show by parol He cannot disclaim or limit his
evience that he is only an personal liability as appearing on
accommodation party the instrument by parol evidence
After paying the holder, he may
sue for reimbursement the He may not sue any subsequent
accommodated party, although a party for reimbursement.
subsequent party.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
DE LA RAMA VS ADMIRAL UNITED SAVINGS BANK
G.R. No. 154740 April 16, 2008
FACTS
Admiral United Savings Bank (ADMIRAL) extended a loan of Five
Hundred Thousand Pesos (P500,000.00) to petitioner Henry Dela
Rama Co (Co), with Leocadio O. Isip (Isip) as co-maker. The loan was
evidenced by Promissory Note.
Co and Isip failed to pay the loan when it became due and
demandable. Demands for payment were made by Admiral, but these
were not heeded, thus prompting Admiral to file a collection case
against them with the QC-RTC. Co answered the complaint alleging
that the promissory note was a sham, and denied having received any
benefirs from the loan transaction, claiming that it was Admiral who
induced him into executing a Promissory Note.
Pending resolution of the case, Isip unfortunately died, thus, dropped
from the complaint. Co then filed a third party complaint against
Metropolitan Rentals & Sales, Inc. (Metro) and averred that
incorporators and officers of Metro prodded him in obtaining the loan.
Metro denied this allegation.
RTC: Dismissed on the ground that Metro already paid the loan.
CA: Reversed, found preponderance of evidence to hold Co liable for
the payment of his loan obligation to ADMIRAL.
Before the SC, Co has not denied the authenticity and due execution
of the promissory note. He however, asserts that he is not legally
bound by said document because he merely acted as an
accommodation party for Metro Rent. He claimed that he signed the
note only for the purpose of lending his name to Metro Rent, without
receiving value therefor.
ISSUE: W/N Co should not be liable for being an accommodation
party
HELD: NO. petition is DENIED
The document, bearing Co's signature speaks for itself. To repeat, Co
has not questioned the genuineness and due execution of the note. By
signing the note, CO acknowledged receipt of the loan and undertook
to pay the same to Admiral. Thus, he cannot validly set up the defense
that he did not receive the value of the note or any consideration
therefor.
At any rate, Co's assertion that he merely acted as an accommodation
party for Metro Rent cannot release him from liability under the note.
An ACCOMMODATION PARTY who lends his name to enable the
accommodated party to obtain credit or raise money is liable on the
instrument to a holder for value even if he receives no part of the
consideration. He assumes the obligation to the other party and binds
himself to pay the note on its due date. By signing the note, Co thus
became liable for the debt even if he had no direct personal
interest in the obligation or did not receive any benefit therefrom.
A PROMISSORY NOTE is a solemn acknowledgment of a debt and a
formal commitment to repay it on the date and under the conditions
agreed upon by the borrower and the lender. A person who signs such
an instrument is bound to honor it as a legitimate obligation duly
assumed by him through the signature he affixes thereto as a token of
his good faith. If he reneges on his promise without cause, he forfeits
the sympathy and assistance of this Court and deserves instead its
sharp repudiation.
Co is not unfamiliar with commercial transactions. He is a certified
public accountant. Certainly, he fully understood the import and
consequences of what he was doing when he signed the promissory
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MIDTERMS: NEGOTIABLE INSTRUMENTS
note. He even mortgaged his own properties to secure payment of the
loan. His disclaimer, therefore, does not inspire belief.
GARCIA V. LLAMAS
| G.R. No. 154127 | DECEMBER 8, 2003
[TOPIC FROM THE SYLLABUS]
ACCOMODATION PARTY: The relation between an accommodation
party and the party accommodated is, in effect, one of principal and
surety — the accommodation party being the surety. It is a settled rule
that a surety is bound equally and absolutely with the principal and is
deemed an original promisor and debtor from the beginning. The
liability is immediate and direct.
[FACTS]
Petitioner and de Jesus borrowed P400,000 from respondent
evidenced by a promissory note wherein they bound themselves jointly
and severally to pay the loan. The loan has long been overdue and
despite repeated demands by respondent, petitioner and de Jesus
have failed and refused to pay it. Thus, a complaint for sum of money
and damags was initiated by Llamas against Garcia and De Jesus.
Garcia averred that he assumed no liability as he signed it merely as
an accommodation party for de Jesus, and that he is relieved from any
liability as such was paid by de Jesus by means of check and that the
issuance of the check and respondent‘s acceptance novated or
superseded the note.
Respondent asserted that the loan remained unpaid for the reason that
the check issued by de Jesus bounced.
[LOWER COURT’S RULING]
RTC: ruled in favor of Llamas and ordered Garcia and De Jesus to
pay, jointly and severally, the respondent 400k for the principal amount
plus interest and 100k for attorney‘s fees.
CA:treated the case as a summary judgment, because petitioner had
failed to raise a single genuine issue regarding any material fact and
thus,affirmed the decision of RTC but remanded the case as to De
Jesus back to the CA as he was still unable to present his evidence ex
parte.
It ruled that no novation had taken place when the check was accepted
by Llamas. Check was issued precisely to pay for the loan that was
covered by the promissory note and such did not serve to make De
Jesus the sole debtor because the obligation was solidary and the
check bounced.
Hence, this petition.
[ISSUE/S]
WON there was novation in the obligation; WON the defense that
petitioner was only an accommodation party had any basis; and
WON the judgment on the pleadings or a summary judgment was
proper.
[HELD]
Issue on novation
Petitioner insists that novation took place, due to the substitution of De
Jesus as sole debtor or the replacement of the promissory note by the
check and that the obligation was extinguished as De Jesus paid the
loan with the check.
For novation to take place, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
Thus, no novation took place. The parties did not declare that the old
obligation had been extinguished by the acceptance of the check or
that the check would replace the note. It is also unmeritorious that the
obligation was novated by the substitution of debtors. Novation is
never presumed. Petitioner has not shown that he was expressly
released from the obligation, that the 3 rd person was substituted in his
place, or that the obligation as cancelled and substituted by the solitary
undertaking of De Jesus. Moreover, the law requires that the creditor
expressly consent to the substitution of a new debtor. More important,
de Jesus was not a 3rd person to the obligation. They were solidary
obligors. Thus, petitioner is liable for the entire obligation.
Issue on defense of accommodation party (related)
Petitioner avers that he is an accommodation party, thus he was
released as obligor when respondent agreed to extend the obligation.
The note:
"PROMISSORY NOTE
"P400,000.00
"RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR
HUNDRED THOUSAND PESOS, Philippine Currency payable on or
before January 23, 1997 at No. 144 K-10 St. Kamias, Quezon City,
with interest at the rate of 5% per month or fraction thereof. IcAaEH
"It is understood that our liability under this loan is jointly and severally
[sic].
"Done at Quezon City, Metro Manila this 23rd day of December, 1996."
Note was made to a specific person rather than to bearer or to order,
thus, NIL does not apply, Civil Code does. Even if granting arguendo
that NIL was applicable. Petitioner would still be liable: Under Article 29
of Act 2031, an accommodation party is liable for the instrument to a
holder for value even if, at the time of its taking, the latter knew the
former to be only an accommodation party. The relation between an
accommodation party and the party accommodated is, in effect, one of
principal and surety — the accommodation party being the surety. It is
a settled rule that a surety is bound equally and absolutely with the
principal and is deemed an original promisor and debtor from the
beginning. The liability is immediate and direct.
Issue on propriety of summary judgment
From the records, it appears that petitioner himself moved to submit
the case for judgment on the basis of the pleadings or summary
judgment. In a written Manifestation, he stated that "judgment on the
pleadings may now be rendered without further evidence, considering
the allegations and admissions of the parties."
Petition is denied.
TOWN SAVING AND LOAN BANK, INC. vs. CA, SPOUSES
MIGUELITO HIPOLITO and ALICIA N. HIPOLITO
| G.R. No. 106011 | June 17, 1993
TOPIC FROM THE SYLLABUS: Accomodation Party –one in whose
favor a person, without receiving value therefor, signs an instrument for
the purpose of lending his credit and enabling said party to raise
money upon it.
FACTS:
On or about May 4, 1983, the Hipolitos applied for, and were granted,
a loan in the amount of P700,000.00 with interest of 24% per annum.
In payment therefore, they executed and delivered to Town Savings
and Loan Bank (or TSLB) a promissory note with a maturity period of
three (3) years and an acceleration clause upon default in the payment
of any amortization, plus a penalty of 36% and 10% attorney's fees, if
the note were referred to an attorney for collection.
Eventually, for failure to keep current their monthly payments on the
account, they were deemed to have defaulted on May 24, 1984.
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MIDTERMS: NEGOTIABLE INSTRUMENTS
Notices of past due account and demands for payment were sent but
ignored. At the time of the institution of the action on March 12, 1986,
the unpaid obligation amounted to P1,114,983.40.
Respondents’ Contentions:
 They alleged that loan was for the account of Pilarita H.
Reyes, the sister of Miguel Hipolito. She was the real party-
in-interest.
 Not having received any part of the loan, they alleged that
they were mere guarantors for Pilarita.
 They allegedly signed the promissory note because they
were persuaded to do so by Joey Santos, President of
TSLB.
 When they received the demand letters, they confronted him
but they were told that the Bank had to observe the formality
of sending notices and demand letters. The real purpose
was only to pressure Pilarita to comply with her undertaking.
LOWER COURTS’ RULING
RTC – held the respondents (then defendants) spouses Miguel and
Alicia Hipolito, liable as accommodation parties on the promissory
note.
CA – relieved the Hipolitos from any liability and held that the it was
TLSB who accomodated Pilarita
ISSUE: WON the Hipolitos are deemed accomodation parties, thus
liable on the promissory note which they executed in favor of the
petitioner
HELD: Yes.
SEC. 29. Liability of accommodation party. – 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 such holder, at the time of the
taking of the instrument knew him to be only an accommodation party.
As held in Phil. Bank of Commerce vs. Aruego:
―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 thereto because he wants to accommodate
another.‖
In this case, there is no question that the private respondents signed
the promissory note in order to enable Pilarita H. Reyes, who is Miguel
Hipolito's sister, to borrow the total sum of P1.4 million from TSLB. As
observed by both the trial court and the appellate court, the actual
beneficiary of the loan was Pilarita H. Reyes and no other.
The Hipolitos accommodated her by signing a promissory note
for half of the loan that she applied for because TSLB may not
lend any single borrower more than the authorized limit of its loan
portfolio. Under Section 29of the Negotiable Instruments Law,the
Hipolitos are liable to the bank on the promissory note that they signed
to accommodate Pilarita.
Respondent CA erred in giving credence to Hipolito's allegation that it
was the bank's president who induced him to sign the promissory note
so that the bank would not violate the Central Bank's regulation limiting
the amount that TSLB could lend out. Besides being self-serving,
Hipolito's testimony was uncorroborated by any other evidence on
record, therefore, it should have been received with extreme caution.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
It is not credible that a Bank would want so much to lend money to a
borrower that it would go out of its way to convince another person
(respondent Miguel Hipolito) to accommodate the borrower (Pilarita H.
Reyes). In the ordinary course of things, the borrower, Pilarita, not the
Bank, would have requested her brother Miguel to accommodate her
so she could have the P1.4 million that she wanted to borrow from the
Bank.
The case of Maulini vs. Serrano relied upon by the appellate court in
reversing the decision of the trial court, is not applicable to this case. In
that case, the SC ruled that:
". . . Where, however, an indorsement is made as a favor to the
indorsee, who requests it, not the better to secure payment, but to
relieve himself from a distasteful situation, and where the only
consideration for such indorsement passes from the indorser to the
indorsee, the situation does not present one creating an
accommodation indorsement, nor one where there is a consideration
sufficient to sustain an action on the indorsement.‖
Unlike, the Maulini case, there was no agreement here, written or
verbal, that in signing the promissory note, Miguel and Alicia Hipolito
were acting as agents for the money lender, the Bank. The
consideration of the note signed by the Hipolitos was received by them
through Pilarita. They acted as agents of Pilarita, not of the bank.
They signed the promissory note as a favor to Pilarita, to help her raise
the funds that she needed. It was Pilarita whom they
accommodated, not the bank, contrary to the erroneous finding of
the appellate court.
Petition is GRANTED. CA Decision is reversed; RTC decision
reinstated.
ERESTINA CRISOLOGO-JOSE V. CA
I G.R. No. 80599 I September 15, 1989
Topic From the Syllabus: Accomodation Party
The issue or indorsement of negotiable paper by a corporation without
consideration and for the accommodation of another is ultra vires.
Hence, one who has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a corporation
where it is only an accommodation party. If the form of the instrument,
or the nature of the transaction, is such as to charge the indorsee with
knowledge that the issue or indorsement of the instrument by the
corporation is for the accommodation of another, he cannot recover
against the corporation thereon.
FACTS:
Plaintiffs Oscar Benares and Ricardo Santos are the president and
vice-president, respectively, of Mover Enterprises, Inc., in
accommodation of his clients the Ongs, issued a check payable to
Jose. Since the check was under the account of the Enterprise, it was
signed by Benares and Santos.
It appears that the check was issued to defendant Ernestina Crisologo-
Jose in consideration of the waiver or quitclaim by said defendant over
a certain property which the Government Service Insurance System
(GSIS) agreed to sell to the clients of Atty. Oscar Benares, the
spouses Jaime and Clarita Ong, with the understanding that upon
approval by the GSIS of the compromise agreement with the spouses
Ong, the check will be encashed accordingly.
However, since the compromise agreement was not approved within
the expected period of time, the aforesaid check for P45,000.00 was
replaced by Atty. Benares with another Traders Royal Bank cheek
bearing No. 379299 dated August 10, 1980, in the same amount of
P45,000.00, also payable to the defendant Jose. This replacement
check was also signed by Atty. Oscar Z. Benares and by the plaintiff
Ricardo S. Santos, Jr. When defendant deposited this replacement
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MIDTERMS: NEGOTIABLE INSTRUMENTS
checkwith her account at Family Savings Bank, Mayon Branch, it was
dishonored for insufficiency of funds.
During the preliminary investigation of the criminal charge against
Benares and the plaintiff herein, before Assistant City Fiscal Alfonso T.
Llamas, plaintiff Ricardo S. Santos, Jr. tendered cashier's check No.
CC 160152 for P45,000.00 dated April 10, 1981 to the defendant
Ernestina Crisologo-Jose, the complainant in that criminal case. The
defendant refused to receive the cashier's check in payment of the
dishonored check in the amount of P45,000.00. Hence, plaintiff
encashed the aforesaid cashier's check and subsequently deposited
said amount of P45,000.00 with the Clerk of Court. Incidentally, the
cashier's check adverted to above was purchased by Atty. Oscar Z.
Benares and given to the plaintiff herein to be applied in payment of
the dishonored check.
Petitioner avers that the accommodation party in this case is Mover
Enterprises, Inc. and not private respondent who merely signed the
check in question in a representative capacity, that is, as vice-
president of said corporation, hence he is not liable thereon under the
Negotiable Instruments Law.
LOWER COURT’S RULING:
RTC- it was "not persuaded to believe that consignation referred to in
Article 1256 of the Civil Code is applicable to this case," rendered
judgment dismissing plaintiff s complaint and defendant's counterclaim
CA-reversed and set aside said judgment of dismissal and revived the
complaint for consignation, directing the trial court to give due course
thereto
ISSUE: Whether or not the corporation is liable to the petitioner as an
accommodation party when the corporate officer issued a corporation‘s
check in their personal capacity.
HELD:
No, The provision of the Negotiable Instruments Law which holds an
accommodation party liable on the instrument to a holder for value,
although such holder at the time of taking the instrument knew him to
be only an accommodation party, does not include nor apply to
corporations which are accommodation parties. This is because the
issue or indorsement of negotiable paper by a corporation without
consideration and for the accommodation of another is ultra vires.
Hence, one who has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a corporation
where it is only an accommodation party.
By way of 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. Corollarily, corporate officers, such as the
president and vice-president, have no power to execute for mere
accommodation a negotiable instrument of the corporation for their
individual debts or transactions arising from or in relation to matters in
which the corporation has no legitimate concern.
Since such accommodation paper cannot thus be enforced against the
corporation, especially since it is not involved in any aspect of the
corporate business or operations, the inescapable conclusion in law
and in logic is that the signatories thereof shall be personally liable
therefor, as well as the consequences arising from their acts in
connection therewith.
RATIO:The fact that for lack of capacity the corporation is not bound
by an accommodation paper does not thereby absolve, but should
render personally liable, the signatories of said instrument where the
facts show that the accommodation involved was for their personal
account, undertaking or purpose and the creditor was aware thereof.
UV-GLS | 2ND YR 2ND SEM | 2019-2020
Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
ANG TIONG VS. TING
GR No. L-26767, Feb 22, 1968
Facts:
On 15 August 1960 Lorenzo Ting issued Philippine Bank of
Communication scheck payable to "cash or bearer". With Felipe Ang's
signature at the back thereof, the instrument was received by Ang
Tiong who thereafter presented it to thedrawee bank for payment. The
bank dishonored it.
Ang Tiong then made written demands on both Lorenzo Ting and
Felipe Ang that they make good the amount represented by the check.
These demands went unheeded; so he filed for collection of the sum of
money. Felipe Ang then elevated the case to the Court of Appeals
contending that he is a mere accommodation party.
Issue: W/N Ang is liable as accommodation party
Held: Yes.
Nothing in the check in question indicates that Felipe Ang is not a
general indorser within the purview of section 63 of the Negotiable
Instruments Law which makes "a person placing his signature upon an
instrument otherwise than as maker, draweror acceptor" a general
indorser, "unless he clearly indicates by appropriate wordshis intention
to be bound in some other capacity," which he did not do.
Section 66 ordains that "every indorser who indorses without
qualifications, warrants to all subsequent holders in due course"
(a) that the instrument is genuine and in all respects what it purports to
be;
(b) that he has a good title to it;
(c) that all prior parties have capacity to contract; and
(d) that the instrument is at the time of his indorsement valid and
subsisting.
In addition, "he engages that on due presentment, it shall be accepted
or paid, or both, as the case may be, and that if it be dishonored, he
will pay the amount thereof to the holder."
Even on the assumption that Felipe Ang is a mere accommodation
party, as he professes to be, he is nevertheless, by the clear mandate
of section 29 of the Negotiable Instruments Law, yet "liable on the
instrument to a holder for value, notwithstanding that such holder at the
time of taking the instrument knew him tobe only an accommodation
party." The accommodation party is liable to a holder for value as if the
contract was not for accommodation. It is not a valid defense that the
accommodation party did not receive any valuable consideration when
he executed the instrument. Nor is it correct to say that the holder for
value is not a holder in due course merely because at the time he
acquired the instrument he knew that the indorser was only an
accommodation party.
That Felipe Ang, again assuming him to be an accommodation
indorser, may obtain security from the maker to protect himself against
the danger of insolvency of the latter, cannot in any manner affect his
liability to Ang Tiong, as the said remedy is a matter of concern
exclusively between accommodation indorser and accommodated
party. So that the fact that Felipe Ang stands only as a surety in
relation to themaker, granting this to be true for the sake of argument,
is immaterial to the claim of Ang Tiong, and does not a whit diminish
nor defeat the rights of the latter who is aholder for value.
The liability of Felipe Ang remains primary and unconditional. To
sanction Felipe Ang's theory is to give unwarranted legal recognition to
the patent absurdity of a situation where an indorser, when sued on an
instrument by a holder in due course and for value, can escape liability
on his indorsement by the convenient expedient of interposing the
defense that he is a mere accommodation indorser.
DISPOSITION: SC affirmed CA’s decision
j-c-g-c-i
36 / 36