Salas vs CA

Petitioner bought a motor vehicle from the Violago Motor Sales Corporation (VMS)
evidenced by a promissory note. The note was subsequently endorsed to Filinvest
Finance & Leasing Corporation which financed the purchase. Petitioner defaulted in her
installments because VMS delivered a different vehicle to her. Due to her failure to pay
Filinvest filed a collection suit. Petitioner argues that no contract ever existed between
her and VMS and therefore none had been assigned in favor of private respondent. She
contends that it is not necessary, as opined by the appellate court, to implead VMS as a
party to the case before it can be made to answer for damages because VMS was
earlier sued by her for "breach of contract with damages" Her defense is that Filinvest
should proceed against VMS because the alleged fraud, bad faith and
misrepresentation by VMS supposedly released her from any liability to Filinvest.

Whether or not the promissory note is a negotiable instrument which will bar completely
all the available defenses of the petitioner against private respondent.

The records reveal that involved herein is not a simple case of assignment of credit as
petitioner would have it appear, where the assignee merely steps into the shoes of, is
open to all defenses available against and can enforce payment only to the same extent
as, the assignor-vendor. Indubitably, the basis of private respondent's claim against
petitioner is a promissory note which bears all the earmarks of negotiability.

Under Section 8 of the Negotiable Instruments Law, there are only two ways by which
an instrument may be made payable to order. There must always be a specified
person named in the instrument and the bill or note is to be paid to the person
designated in the instrument or to any person to whom he has indorsed and delivered
the same. Without the words "or order" or "to the order of", the instrument is payable
only to the person designated therein and is therefore non-negotiable. Any subsequent
purchaser thereof will not enjoy the advantages of being a holder of a negotiable
instrument but will merely "step into the shoes" of the person designated in the
instrument and will thus be open to all defenses available against the latter.

The questioned promissory note is a negotiable instrument because it complied with all
the requisites provided for by law:
[a] that it is in writing and signed by the maker Juanita Salas;
[b] that it contains an unconditional promise to pay the amount of P58,138.20;
[c] that it is payable at a fixed or determinable future time which is “P1,614.95 monthly
for 36 months due and payable on the 21st day of each month starting March 21, 1980
thru and inclusive of Feb. 21, 1983;”
[d] that it is payable to Violago Motor Sales Corporation, or order and as such,
[e] that the drawee is named or indicated with certainty.
The note was negotiated by indorsement in writing on the instrument itself payable to
the Order of Filinvest Finance and Leasing Corporation. It is an indorsement of the
entire instrument.

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Whether or not Filinvest is a holder in due course
Filinvest is a holder in due course because it has taken the instrument under the
following conditions:
[a] it is complete and regular upon its face;
[b] it became the holder thereof before it was overdue, and without notice that it had
previously been dishonored;
[c] it took the same in good faith and for value; and
[d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the
instrument or defect in the title of VMS Corporation.

As a holder in due course, Filinvest holds the instrument free from any defect of title of
prior parties, and free from defenses available to prior parties among themselves and
may enforce payment of the instrument for the full amount thereof. This being so,
petitioner cannot set up against respondent the defense of nullity of the contract
of sale between her and VMS.

Even assuming for the sake of argument that there is an iota of truth in petitioner's
allegation that there was in fact deception made upon her in that the vehicle she
purchased was different from that actually delivered to her, this matter cannot be
passed upon in the case before us, where the VMS was never impleaded as a party.
Whatever issue is raised or claim presented against VMS must be resolved in the
"breach of contract" case.

De Ocampo vs Gatchalian
Anita Gatchalian was interested in buying a car when she was offered by Manuel
Gonzales to a car owned by the Ocampo Clinic. Anita accepted the offer but Gonzales
advised that the owners will not be willing to give the certificate of registration unless
there is a showing that the party interested in the purchase of said car is ready and
willing to make such purchase and that for this purpose Manuel Gonzales requested
defendant Anita C. Gatchalian to give him, (Manuel Gonzales) a check which will be
shown to the owner as evidence of buyer's good faith in the intention to purchase the
said car, the said check to be for safekeeping only of Manuel Gonzales and to be
returned to defendant Anita C. Gatchalian the following day when Manuel Gonzales
brings the car and the certificate of registration.

Relying on the latter’s representation, Anita issued a check. The next day, Gonzales
never appeared. The failure of Gonzales to appeal resulted in Gatchalian to issue a
STOP PAYMENT ORDER on the check. It was later found out that Gonzales used the
check as payment to the Vicente de Ocampo for the hospitalization fees of his wife
(P 441.75/P 600). De Ocampo now demands payment for the check, which Gatchalian
refused, arguing that de Ocampo is not a holder in due course and that there is no
negotiation of the check since there was no valid indorsement. De Ocampo argued that
he is a holder in due course because he is the named payee.

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Whether there was negotiation the first place
The other contention of the plaintiff is that there has been no negotiation of the
instrument, because the drawer did not deliver the instrument to Manuel Gonzales with
the intention of negotiating the same, or for the purpose of giving effect thereto, for as
the stipulation of facts declares the check was to remain in the possession of Manuel
Gonzales, and was not to be negotiated, but was to serve merely as evidence of good
faith of defendants in their desire to purchase the car being sold to them.

Admitting that such was the intention of the drawer of the check when she delivered it to
Manuel Gonzales, it was no fault of the plaintiff-appellee drawee if Manuel Gonzales
delivered the check or negotiated it. As the check was payable to the plaintiff-appellee,
and was entrusted to Manuel Gonzales by Gatchalian, the delivery to Manuel Gonzales
was a delivery by the drawer to his own agent; in other words, Manuel Gonzales was
the agent of the drawer Anita Gatchalian insofar as the possession of the check is
concerned. So, when the agent of drawer Manuel Gonzales negotiated the check with
the intention of getting its value from plaintiff- appellee, negotiation took place through
no fault of the plaintiff- appellee, unless it can be shown that the plaintiff-appellee should
be considered as having notice of the defect in the possession of the holder Manuel
Gonzales.

Whether or not De Ocampo is a holder in due course.

No. De Ocampo is not a holder in due course for his lack of good faith. De Ocampo
should have inquired as to the legal title of Manuel to the said check. The fact that
Gatchalian has no obligation to De Ocampo and yet he’s named as the payee in the
check hould have apprised De Ocampo; that the check did not correspond to Matilde
Gonzales’ obligation with the clinic because of the fact that it was for P600.00 – more
than the indebtedness; and that the check had two parallel lines in the upper left hand
corner, which practice means that the check could only be deposited but may not be
converted into cash; that why was Manuel in possession of the check – all these gave
De Ocampo the duty to ascertain from the holder Manuel Gonzales what the nature of
the latter’s title to the check was or the nature of his possession.

In order to show that the defendant had 'knowledge of such facts that his action in
taking the instrument amounted to bad faith,' it is not necessary to prove that the
defendant knew the exact fraud that was practiced upon the plaintiff by the defendant's
assignor, it being sufficient to show that the defendant had notice that there was
something wrong about his assignor's acquisition of title, although he did not have
notice of the particular wrong that was committed.

Good faith means not only lack of knowledge of any infirmity in the instrument
but also absence of gross neglect on the part of the holder. Where the payee
acquired the check under circumstances which should have put it to inquiry, why the
holder had the check and used it, to pay his own personal account, the holder must

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make further inquiry. The failure to make such inquiry destroys the presumption that he
is a holder in due course or that he acquired the instrument in good faith.

The term 'bad faith' does not necessarily involve furtive motives but means bad faith
in a commercial sense. Although gross negligence does not of itself constitute bad
faith, it is evidence from which bad faith may be inferred. The circumstances thrust
the duty upon the defendants to make further inquiries and they had no right to shut
their eyes deliberately to obvious facts.

Bataan Cigar vs CA

Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim Pua George, to
deliver 2,000 bales of tobacco leaf. BCCFI issued post-dated crossed checks in
exchange. Trusting King's words, BCCFI issued another post-dated cross check for
another purchase of tobacco leaves. During these times, King was dealing with State
Investment House Inc. On two separate occasions King sold at a discount the post-
dated cross checks to SIHI, that was drawn by BCCFI in favor of King. Because King
failed to deliver the leaves, BCFI issued a stop payment to all the checks, including
those sold to SIHI.

On negotiability of crossed checks; effects

Crossed check is one where two parallel lines are drawn across its face or across a
corner thereof. It may be crossed generally or specially.
A check is crossed specially when the name of a particular banker or a
company is written between the parallel lines drawn.
It is crossed generally when only the words "and company" are written or
nothing is written at all between the parallel lines.
It may be issued so that presentment can be made only by a bank. According to
commentators, the negotiability of a check is not affected by its being crossed,
whether specially or generally. It may legally be negotiated from one person to
another as long as the one who encashes the check with the drawee bank is another
bank, or if it is specially crossed, by the bank mentioned between the parallel lines.

Jurisprudence has pronounced that crossing of a check should have the following
effects:
a) the check may not be encashed but only deposited in the bank;
b) the check may be negotiated only once — to one who has an account with a
bank;
c) and the act of crossing the check serves as warning to the holder that the check
has been issued for a definite purpose so that he must inquire if he has received
the check pursuant to that purpose, otherwise, he is not a holder in due

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Whether SIHI, a second indorser, a holder of crossed checks, is a holder in due course,
to be able to collect from the drawer, BCCFI.
No. In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is
to George King. Because, really, the checks were issued with the intention that George
King would supply BCCFI with the bales of tobacco leaf. There being failure of
consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be
obliged to pay the checks.

The crossing of checks should put the holder on inquiry and upon him devolves the duty
to ascertain the indorser's title to the check or the nature of his possession. Failing in
this respect, the holder is not deemed to be a holder in due course for absence of good
faith. The purpose of crossed checks is to avoid those bouncing or encashing of
forged checks.

SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the
checks. However, this does not mean that SIHI could not recover from the checks. The
only disadvantage of a holder who is not a holder in due course is that the instrument is
subject to defenses as if it were non-negotiable. Hence, SIHI can collect from the
immediate indorser, George King.

Ramon Ilusorio vs CA

Petitioner was a prominent businessman (i.e., Managing Director of Multinational

Investment Bancorporation and the Chairman and/or President of several other
corporations) who, because of different business commitments, entrusted to his then
secretary the handling of his credit cards and checkbooks. For a material period of time,
the secretary was able to encash and deposit in her personal account money (through
17 checks) from the account of petitioner. Petitioner did not bother to check his
statement of account until a business partner apprised him that he saw Eugenio, his
secretary, use his credit cards. She was fired immediately and criminal actions (estafa
through falsification) were filed against her by the petitioner and also by the Respondent
Bank (Manila Bank). Thereafter, petitioner requested the bank to restore its money but
the bank refused to do so.

WON the bank is bound to reimburse petitioner for the amount of the forged checks.
No. 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. Curiously though,
petitioner failed to supply additional signature specimens as requested by the NBI.

Aside from his own testimony, the appellant presented no other evidence to prove the
fact of forgery. He did not even submit his own specimen signatures, taken on or about
the date of the questioned checks, for examination and comparison with those of the
subject checks. On the other hand, the appellee presented specimen signature cards of

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the appellant, taken at various years, showing variances in the appellant's unquestioned
signatures.

The bank was not also remiss in performance of its duties, it practices due diligence in
encashing checks (process of verification). The bank didn’t have any hint of the modus
operandi of Eugenio as she was a regular customer, designated by the petitioner
himself to transact on his behalf.

TMBC's employees exercised due diligence before encashing the checks. Its verifiers
first verified the drawer's signatures thereon as against his specimen signature cards,
and when in doubt, the verifier went further, such as by referring to a more experienced
verifier for further verification. In some instances the verifier made a confirmation by
calling the depositor by phone. It is only after taking such precautionary measures that
the subject checks were given to the teller for payment

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. The bank was not shown to be remiss in its duty
of sending monthly bank statements to petitioner so that any error or discrepancy in the
entries therein could be brought to the bank's attention at the earliest opportunity. It was
petitioner who was negligent in this case. He failed to examine his bank statements and
gave an unusal trust to his secretary and these were the proximate cause of his own
damage. Because of this negligence, he is precluded from setting up the defense
of forgery, assuming there is forgery, with regard the checks.

Moreover, the appellant had introduced his secretary to the bank for purposes of
reconciliation of his account, through a letter. Thus, the said secretary became a
familiar figure in the bank. What is worse, whenever the bank verifiers call the office
of the appellant, it is the same secretary who answers and confirms the checks. The
trouble is, the appellant had put so much trust and confidence in the said
secretary, by entrusting not only his credit cards with her but also his checkbook with
blank checks. He also entrusted to her the verification and reconciliation of his
account. While the bank was sending him the monthly Statements of Accounts, he
was not personally checking the same. His testimony did not indicate that he was
out of the country during the period covered by the checks. Thus, he had all the
opportunities to verify his account as well as the cancelled checks issued
thereunder.

Petitioner contends that respondent Manila Bank as the collecting or last endorser
generally suffers the loss because it has the duty to ascertain the genuineness of all
prior endorsements. In other cited cases, the fact of forgery was not in issue. In the
present case, the fact of forgery was not established with certainty. In those cited cases,
the collecting banks were held to be negligent for failing to observe precautionary
measures to detect the forgery. In the case before us, both courts below uniformly found

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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.

WON Manila Bank in filing an estafa case against petitioner's secretary, is barred from
raising the defense that the fact of forgery was not established.
The fact that Manila Bank had filed a case for estafa against Eugenio would not estop it
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. Manila Bank filed the estafa case against Eugenio on the
basis of petitioner's own affidavit, but without admitting that he had any personal
knowledge of the alleged forgery. It is, therefore, easy to understand that the filing of the
estafa case by respondent bank was a last ditch effort to salvage its ties with the
petitioner as a valuable client, by bolstering the estafa case which he filed against his
secretary.

Quirino Gonzales Logging vs CA

Petitioner Quirino Gonzales Logging Concessionaire (QGLC) applied for credit

accommodation which the Bank approved. Their obligation was secured by a real estate
mortgage of parcels of land. QGLC executed a promissory note in which they defaulted.
Thereafter, respondent bank filed a complaint for sum of money against petitioners
alleging the nonpayment of the balance after proceeds of the foreclosure sale were
applied to the obligation. The notes were payable 30 days after date and provided for
the solidary liability in their non-payment at maturity. Petitioners deny having received
the value of the promissory notes.

Petitioners seek to evade liability claiming that petitioners Quirino and Eufemia
Gonzales signed the promissory notes in blank; that they had not received the value of
said notes, and that the credit line thereon was unnecessary in view of their money
deposits and unremitted proceeds on log exports from, the Bank.

Whether the promissory notes were valid

Yes. The genuineness and due execution of the notes had, however, been deemed
admitted by petitioners, they having failed to deny the same under oath. Their claim that
they signed the notes in blank does not thus lie. Petitioners' admission of the
genuineness and due execution of the promissory notes notwithstanding, they raise
want of consideration thereof. The promissory notes, however, appear to be negotiable
as they meet the requirements of Section 1 of the Negotiable Instruments Law. Such
being the case, the notes are prima facie deemed to have been issued for
consideration. It bears noting that no sufficient evidence was adduced by petitioners to
show otherwise.

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In any case, it is no defense that the promissory notes were signed in blank as Section
14 of the Negotiable Instruments Law concedes the prima facie authority of the
person in possession of negotiable instruments, such as the notes herein, to fill in the
blanks.

PCIB vs CA

Ford Philippines drew and issued Citibank Checks, all in favor of the (CIR) for payment
of its percentage taxes. The checks were crossed with words written “payable to the
payee’s account only” and deposited with the IBAA, now PCIB, BIR's authorized
collecting bank. The first check was cleared containing an indorsement that "all prior
indorsements and/or lack of indorsements guaranteed." The same, however, was
replaced with two (2) IBAA's managers' checks based on a call and letter request made
by Godofredo Rivera, Ford's General Ledger Accountant, on an alleged error in the
computation of the tax due without IBAA verifying the authority of Rivera. These
manager's checks were later deposited in another bank and misappropriated by the
syndicate. The last two checks were cleared by the Citibank but failed to discover that
the clearing stamps do not bear any initials. The proceeds of the checks were also
illegally diverted or switched by officers of PCIB — members of the syndicate, who
eventually encashed them. Ford, which was compelled to pay anew the percentage
taxes, sued in two actions for collection against the two banks barely six years from the
date the first check was returned to the drawer. The direct perpetrators of the crime are
now fugitives from justice.

In an investigation, it was found that these checks were embezzled by the same
syndicate to which Rivera was a member. It was established that an employee of PCIB,
also a member of the syndicate, created a PCIB account under a fictitious name upon
which the two checks, through high end manipulation, were deposited. PCIB unwittingly
endorsed the checks to Citibank which the latter cleared. Upon clearing, the amount
was withdrawn from the fictitious account by syndicate members.

What are the liabilities of each party?

Ford is not liable. The general rule is that if the master is injured by the negligence of a
third person and by the concurring contributory negligence of his own servant or agent,
the latter's negligence is imputed to his superior and will defeat the superior's action
against the third person, assuming, of course that the contributory negligence was the
proximate cause of the injury of which complaint is made. Accordingly, we need to
determine whether or not the action of Godofredo Rivera, Ford's General Ledger
Accountant, and/or Alexis Marindo, his assistant, was the proximate cause of the loss or
damage.

It appears that although the employees (accountant) of Ford initiated the transactions
attributable to an organized syndicate, in our view, their actions were not the
proximate cause of encashing the checks payable to the CIR. The BOD of Ford did

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not confirm the request of Godofredo Rivera to recall Citibank Check. Rivera's
instruction to replace the said check with PCIBank's Manager's Check was not in the
ordinary course of business which could have prompted PCIBank to validate the same.

As to the preparation of Citibank Checks, it was established that these checks were
made payable to the CIR. Both were crossed checks. These checks were apparently
turned around by Ford's employees, who were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a
drawerpayor's confidential employee or agent, who by virtue of his position had
unusual facilities for perpetrating the fraud and imposing the forged paper upon the
bank, does not entitle the bank to shift the loss to the drawer-payor, in the
absence of some circumstance raising estoppel against the drawer. This rule
likewise applies to the checks fraudulently negotiated or diverted by the confidential
employees who hold them in their possession.

Nevertheless, 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.

PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.

PCIB, as a collecting bank has been negligent in verifying the authority of Rivera to
negotiate the check. As agent of the BIR (the payee of the check), defendant IBAA
should receive instructions only from its principal BIR and not from any other person
(worse through a telephone call) especially so when that person is not known to the
defendant. It failed to ascertain whether or not Rivera can validly recall the check and
have them be replaced with PCIB’s manager’s checks as in fact, Ford has no
knowledge and did not authorize such. It is a well-settled rule that the relationship
between the payee or holder of commercial paper and the bank to which it is sent
for collection is, in the absence of an agreement to the contrary, that of principal and
agent. A bank which receives such paper for collection is the agent of the payee or
holder.

Even considering arguendo, that the diversion of the amount of a check payable to the
collecting bank in behalf of the designated payee may be allowed, still such diversion
must be properly authorized by the payor.

As a general rule, a bank is liable for the negligent or tortuous act of its employees
within the course and apparent scope of their employment or authority. Hence, PCIB is
liable for the fraudulent act of its employee who set up the savings account under a
fictitious name. A bank holding out its officers and agents as worthy of confidence will
not be permitted to profit by the frauds these officers or agents were enabled to

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perpetrate in the apparent course of their employment. Central Bank Circular No. 580
provides that any theft affecting items in transit for clearing, shall be for the account of
sending bank, which in this case is PCIBank. Hence, PCIB is liable for the amount of
the embezzled check.

Citibank maintains that; the payment it made of plaintiff's Citibank Check "was in due
course"; it merely relied on the clearing stamp of the depository/collecting bank, the
defendant IBAA that "all prior indorsements and/or lack of indorsements guaranteed";
and the proximate cause of plaintiff's injury is the gross negligence of defendant IBAA in
indorsing the plaintiff's Citibank check in question.

A bank which cashes a check drawn upon another bank, without requiring proof as to
the identity of persons presenting it, or making inquiries with regard to them, cannot
hold the proceeds against the drawee when the proceeds of the checks were afterwards
diverted to the hands of a third party. In such cases the drawee bank has a right to
believe that the cashing bank (or the collecting bank) had, by the usual proper
investigation, satisfied itself of the authenticity of the negotiation of the checks.

Citibank (drawee bank) is likewise liable because it was negligent in the performance of
its obligations with respect to its agreement with Ford (Doctrine of comparative
neglegence). The checks which were drawn against Ford’s account with Citibank clearly
states that they are payable to the CIR only yet Citibank delivered said payments to
PCIB. The clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do
not bear any initials. Citibank failed to notice and verify the absence of the clearing
stamps. Had this been duly examined, the switching of the worthless checks to Citibank
Check Nos. 10597 and 16508 would have been discovered in time. Citibank however
argues that the checks were indorsed by PCIB to Citibank and that the latter has
nothing to do but to pay it. The Supreme Court cited Section 62 of the Negotiable
Instruments Law which mandates the Citibank, as an acceptor of the checks, to engage
in paying the checks according to the tenor of the acceptance which is to deliver the
payment to the “payee’s account only” (contractual obligation).

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.

On prescription
The statute of limitations begins to run when the bank gives the depositor notice of the
payment, which is ordinarily when the check is returned to the alleged drawer as a
voucher with a statement of his account, and an action upon a check is ordinarily
governed by the statutory period applicable to instruments in writing. The action upon a
written contract must be brought within ten years from the time the right of action
accrues. Hence, the reckoning time for the prescriptive period begins when the

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instrument was issued and the corresponding check was returned by the bank to its
depositor (normally a month thereafter).

Myron Papa vs A.U. Valencia

Myron Papa is the administrator of the estate of Angela Butte. He sold a portion of said
estate to Felix Peñarroyo through A.U. Valencia and Co., Inc. Peñarroyo gave Papa
P5,000.00 plus a check worth P40,000.00. However, Papa was not able to deliver the
certificate of title to Peñarroyo. A litigation ensued to compel petitioner to deliver the
certificate of title and ten years after, Papa argued that the sale between him and
Peñarroyo was never consummated because he did not encash the P40,000.00 check
and that the P5,000.00 cash was merely earnest money. He avers that there must be a
showing that said check had been encashed. If, according to petitioner, the check had
been encashed, respondent Peñarroyo should have presented PCIB Check duly
stamped received by the payee, or at least its microfilm copy.

Whether or not the checks were deemed encashed

Petitioner himself admits having received said amounts, and having issued receipts
therefor. Petitioner's assertion that he never encashed the aforesaid check is not
substantiated and is at odds with his statement in his answer that "he can no longer
recall the transaction which is supposed to have happened 10 years ago." After more
than ten (10) years from the payment in part by cash and in part by check, the
presumption is that the check had been encashed. Granting that Papa had never
encashed the check, his failure to do so for more than ten (10) years undoubtedly
resulted in the impairment of the check through his unreasonable and unexplained
delay. While it is true that the delivery of a check produces the effect of payment only
when it is cashed, pursuant to Article 1249 of the Civil Code, the rule is otherwise if the
debtor (Peñarroyo) is prejudiced by the creditor’s (Papa’s) unreasonable delay in
presentment. The acceptance of a check implies an undertaking of due diligence in
presenting it for payment, and if he from whom it is received sustains loss by want of
such diligence, it will be held to operate as actual payment of the debt or obligation for
which it was given.

Considering that respondents Valencia and Peñarroyo had fulfilled their part of the
contract of sale by delivering the payment of the purchase price, said respondents,
therefore, had the right to compel petitioner to deliver to them the owner's duplicate of
TCT No. 28993 of Angela M. Butte and the peaceful possession and enjoyment of the
lot in question.

HSBC vs Catalan

Catalan filed a complaint for sum of money with damages against petitioner praying that
HSBANK and HSBC TRUSTEE be ordered to pay P 20,864,000 representing the value
of the five checks issued by Thomson to respondent.The checks when deposited were
returned by HSBANK purportedly for reason of “payment stopped” pending

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confirmation, despite the fact that the checks were duly funded, and that Thomson has
demanded the bank to pay the same. Thereafter, Catalan demanded that HSBANK
make good the checks issued by Thomson. The personal secretary and attorney-in-fact
of Thomson wrote a letter to Sousa of HSBANK informing him that HSBANK's failure to
clear all the checks had saddened Thomson and requesting that the clearing of the
checks be facilitated. Subsequently, Thomson died, and Catalan forwarded her demand
to HSBC TRUSTEE. Catalan sent photocopies of the returned checks to HSBC
TRUSTEE. Not satisfied, HSBC TRUSTEE through deceit and trickery, required
Catalan, as a condition for the acceptance of the checks, to submit the original copies of
the returned checks, purportedly, to hasten payment of her claim. Catalan and her
former counsel went to Hongkong at their own expense to personally deliver the
originals of the returned checks to the officers of HSBC TRUSTEE, anxious of receiving
the money value of the checks but HSBC TRUSTEE despite receipt of the original
checks, refused to pay Catalan's claim. On the assurance of HSBC TRUSTEE that her
claim will soon be paid, as she was made to believe that payments of the checks shall
be made by HSBC TRUSTEE "upon sight," the unsuspecting Catalan left the originals
of the checks with HSBC TRUSTEE and was given only an acknowledgment receipt.
The Senior Vice President of HSBC TRUSTEE, in obvious disregard of her valid claim,
informed Catalan that her claim is disapproved. No reason or explanation whatsoever
was made why her claim was disapproved, neither were the checks returned to her.

Catalan alleged in the complaint the gross inaction of HSBANK on Thomson’s

instructions, as well as its evident failure to inform Catalan of the reason for its
continued inaction and non-payment of the checks. Catalan invoked Article 19 of the
Civil Code as basis for her cause of action.
HSBANK and HSBC TRUSTEE contend in common that Catalan has no cause of
action for abuse of rights under Article 19 of the Civil Code; that her complaint, under
the guise of a claim for damages, is actually a money claim against the estate of
Thomson arising from checks issued by the latter in her favor in payment of
indebtedness.

Whether or not the payee may sue the drawee bank based on tort under Art. 19 of the
New Civil Code.
Yes. It is evident that Catalan is suing HSBANK and HSBC TRUSTEE for unjustified
and willful refusal to pay the value of the checks. In order to be liable under the abuse of
rights principle, three elements must concur, to wit:
a) that there is a legal right or duty;
b) which is exercised in bad faith; and
c) for the sole intent of prejudicing or injuring another.

HSBANK claims that Catalan has no cause of action because under Section 189 of the
Negotiable Instruments Law, “a check of itself does not operate as an assignment of
any part of the funds to the credit of the drawer with the bank, and the bank is not liable
to the holder unless and until it accepts or certifies it.” However, HSBANK is not being
sued on the value of the check itself but for how it acted in relation to Catalan’s claim for

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payment despite the repeated directives of the drawer Thomson to recognize the check
the latter issued.

HSBANK is being sued for unwarranted failure to pay the checks notwithstanding
the repeated assurance of the drawer Thomson as to the authenticity of the checks and
frequent directives to pay the value thereof to Catalan. Her allegations in the complaint
that the gross inaction of HSBANK on Thomson's instructions, as well as its evident
failure to inform Catalan of the reason for its continued inaction and non-payment of the
checks, smack of insouciance on its part, are sufficient statements of clear abuse of
right. HSBANK's actions, or lack thereof, prevented Catalan from seeking further
redress with Thomson for the recovery of her claim while the latter was alive.

Anent HSBC TRUSTEE, it is being sued for the baseless rejection of Catalan’s claim.
When Catalan went to the extent of traveling to Hongkong to deliver personally the
checks, HSBC TRUSTEE summarily disapproved her claim with nary a reason. HSBC
TRUSTEE gave no heed to Catalan's incessant appeals for an explanation. Her pleas
fell on deaf and uncaring corporate ears. Clearly, HSBC TRUSTEE's acts are anathema
to the prescription for human conduct enshrined in Article 19 of the Civil Code.

Crisologo vs CA and Ricardo Santos

Ricardo Santos, Jr. was the VP of Mover Enterprises while Atty. Benares was the
president. Atty. Benares, in accommodation of his clients, the spouses Ong issued a
check against Traders Royal Bank in the amount of P45,000.00 payable to defendant
Ernestina Crisologo-Jose. Since the check was under the account of Mover Enterprises,
Inc., the same was to be signed by its president, Atty. Benares, and the treasurer of the
said corporation. However, since at that time, the treasurer of Mover Enterprises was
not available, Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign
the aforesaid check as an alternate signatory. Plaintiff Ricardo S. Santos, Jr. did sign
the check.

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 GSIS agreed to
sell to the clients of Atty. Oscar Benares, the spouses 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 check in the same
amount. This replacement check was also signed by the VP and the President. When
defendant deposited this replacement check, it was dishonored for insufficiency of
funds. A subsequent redepositing of the said check was likewise dishonored. Hence, a
BP22 case was filed against Atty. Oscar Z. Benares and plaintiff Ricardo S. Santos, Jr.

During the preliminary investigation, plaintiff Ricardo S. Santos, Jr. tendered cashier's
check to the defendant Ernestina Crisologo-Jose which the latter refused. Hence,

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plaintiff encashed the aforesaid cashier's check and subsequently deposited it with the

Petitioner Crisologo contends that respondent Court of Appeals erred in holding that
private respondent, one of the signatories of the check issued under the account of
Mover Enterprises, Inc., is an accommodation party under the Negotiable Instruments
Law and a debtor of petitioner to the extent of the amount of said 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.

Who is an accommodation party?

To be considered an accommodation party, a person must:
1) be a party to the instrument
2) not receive value therefor
3) sign for the purpose of lending his name for the credit of some other person.
It is not a valid defense that the accommodation party did not receive any valuable
consideration when he executed the instrument. He is liable to a holder for value as if
the contract was not for accommodation, in whatever capacity such accommodation
party signed the instrument, whether primarily or secondarily. Thus, it has been held
that in lending his name to the accommodated party, the accommodation party is in
effect a surety for the latter.

WON the corporation can be held liable as accommodation party?

No. The aforequoted 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.
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.

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.

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Who should be liable then?
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. Petitioner Crisologo was evidently charged with the knowledge that the check
was issued at the instance and for the personal account of Atty. Benares who merely
prevailed upon respondent Santos to act as co-signatory in accordance with the
arrangement of the corporation with its depository bank. That it was a personal
undertaking of said corporate officers was apparent to petitioner by reason of her
personal involvement in the financial arrangement and the fact that, while it was the
corporation's check which was issued to her for the amount involved, she actually had
no transaction directly with said corporation.

Is consignation then proper?

Petitioner's submission is that no creditor-debtor relationship exists between the parties,
hence consignation is not proper. Concomitantly, this argument was premised on the
assumption that private respondent Santos is not an accommodation party. As
previously discussed, however, respondent Santos is an accommodation party and is,
therefore, liable for the value of the check. The fact that he was only a co-signatory
does not detract from his personal liability. A co-maker or co-drawer under the
circumstances in this case is as much an accommodation party as the other co-
signatory or, for that matter, as a lone signatory in an accommodation instrument. Under
the doctrine in Philippine Bank of Commerce vs. Aruego, supra, he is in effect a co-
surety for the accommodated party with whom he and his co-signatory, as the other co-
surety, assume solidary liability ex lege for the debt involved. With the dishonor of the
check, there was created a debtor-creditor relationship, as between Atty. Benares and
respondent Santos, on the one hand, and petitioner, on the other. This circumstance
enables respondent Santos to resort to an action of consignation where his tender of
payment had been refused by petitioner.

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