FOSSUM V.

FERNANDEZ

44 PHIL 675
 

FACTS:
Fernandez  Hermanos  placed  an  order  with  the  products  company  for  the
manufacturing of a chain given a set of specifications.  The chain was duly
prepared  and  delivered.    A  draft  was  drawn  by  the  company  and  was
accepted  by  Fernandez  Hermanos.    Thereafter,  the  draft  was  negotiated
with  Fossum  who  demanded payment  on  the  instrument  but  was  refused by 
Fernandez  on  alleged  failure  of  the  chain  delivered  to  satisfy  the
specifications given. 
 

HELD:
It devolved around Fernandez Hermanos to allege and prove its claim that which
was delivered and received didn't comply with the specifications and didn't
answer the purposes for which it was intended.  It alleged that the chain 
didn't  meet  the  specifications  given  by  the  contract.    Nonetheless,
there was failure to identify the so-called defects of the chain.  It was
uponFernandez Hermanos to show that indeed the chain was defective.  But as the
trial court found out, there was a failure of proof. 

Bataan Cigar and Cigarette Factory, Inc. v. Court of Appeals [G.R. No. 93048.
March 3, 1994]

30JUL

FACTS
Petitioner BCCFI issued crossed checks to George King in consideration of tobacco
bales, which the latter sold to respondent SIHI in a discounted price. George
King failed to deliver the consideration. BCCFI ordered to stop payment. SIHI
failed to encash the crossed checks.

ISSUE
Whether or not respondent SIHI here have shown legal absence of good faith.

 
RULING
YES. In failing to inquire about crossed checks, the holder SIHI is declared
guilty of gross negligence amounting to legal absence of good faith, contrary to
Sec. 52(c) of the Negotiable Instruments Law, and as such the consensus of
authority is to the effect that the holder of the check is not a holder in due
course.

PCIB V. CA

350 SCRA 446

 

FACTS:
Ford Philippines filed actions to recover from the drawee bank Citibank and
collecting   bank   PCIB   the   value   of   several   checks   payable   to  
the Commissioner of Internal Revenue which were embezzled  allegedly by an
organized  syndicate.    What  prompted  this  action  was  the  drawing  of  a
check  by  Ford,  which  it  deposited  to  PCIB  as  payment  and  was  debited
from their Citibank account.  It later on found out that the payment wasn’t
received  by  the  Commissioner.    Meanwhile,  according  to  the  NBI  report,
one of the checks issued by petitioner was withdrawn from PCIB for alleged
mistake in the amount to be paid.  This was replaced with manager’s check by 
PCIB,  which  were  allegedly  stolen  by  the  syndicate  and  deposited  in
their own account.   
 
The trial court decided in favor of Ford. 

ISSUE:
Has Ford the right to recover the value of the checks intended as payment to
CIR? 

HELD:
The checks were drawn against the drawee bank but the title of the person
negotiating the same was allegedly defective because the instrument was obtained 
by  fraud  and  unlawful  means,  and  the  proceeds  of  the  checks were not
remitted to the payee.  It was established that instead paying the 
Commissioner,  the  checks  were  diverted  and  encashed  for  the  eventual
distribution among members of the syndicate. 
 
Pursuant  to  this,  it  is  vital  to  show  that  the  negotiation  is  made 
by  the perpetrator in breach of faith amounting to fraud.  The person
negotiating the checks must have gone beyond the authority given by his
principal.  If the principal could prove that there was no negligence in the
performance of  his  duties,  he  may  set  up  the  personal  defense  to 
escape  liability  and recover from other parties who, through their own
negligence, allowed the commission of the crime. 
 
It  should  be  resolved  if  Ford  is  guilty  of  the  imputed  contributory
negligence that would defeat its claim for reimbursement, bearing in mind that
its employees were among the members of the syndicate.  It appears although  the 
employees  of  Ford  initiated  the  transactions  attributable  to the 
organized  syndicate,  their  actions  were  not  the  proximate  cause  of
encashing  the  checks  payable  to  CIR.    The  degree  of  Ford’s  negligence
couldn’t  be  characterized  as  the proximate  cause  of  the  injury  to 
parties.    The  mere  fact  that  the  forgery  was  committed  by  a  drawer-
payor’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, doesn’t entitle the bank to shift the loss to the drawer-payor, in the
absence of some circumstance raising estoppel against the drawer.   
 
Note:  not  only  PCIB  but  also  Citibank  is  responsible  for  negligence. 
Citibank was negligent in the performance of its duties as a drawee bank.  It 
failed  to  establish  its  payments  of  Ford’s  checks  were  made  in  due
course and legally in order.  

CHAN WAN V. TAN KIM

109 PHIL 706

 

FACTS:
Tam Kim issued 11 checks payable to cash or bearer.  Chan Wan presented these 
for  payment  but  were  dishonored  for  insufficiency  of  funds.    This
prompted  Chan  Wan  to  institute  an  action  against  Tam  Kim.    She  didn't
take the witness stand and merely presented the checks for payment.  Tan Kim on
the other hand alleged that the checks were for mere receipts only.  The  trial 
court  dismissed  the  complaint  as  Chan  Wan  failed  to  show  that she was a
holder in due course. 
 

HELD:
Eight of the checks were crossed checks specially to Chinabank and should have 
been  presented  for  payment  by  Chinabank  and  not  by  Chan  Wan.  Inasmuch 
as  Chan  Wan  didn't  present  them  for  payment  himself,  there was no proper
presentment, and the liability didn't attach to the drawer.   
 
The facts show that the checks were indeed deposited with Chinabank and were by
the latter presented for collection to the drawee bank.  But as the account  had
no sufficient funds, they were unpaid and  returned, some  of them stamped
“account closed”.  How it reached the hands of Chan Wan, she  didn't 
indicate.    Most  probably,  as  the  trial  court  surmised,  she acquired them
after they have been dishonored.   
 
Chan Wan is then not a holder in due course.  Nonetheless, it doesn't mean that
she couldn't collect on the checks.  He can still collect against Tan Kim if 
the  latter  has  no  valid  excuse  for  refusing  payment.    The  only
disadvantage  for  Chan  Kim  is  that  she  is  susceptible  to  defenses  of 
Tan Kim but what are the defenses of latter?  This has to be further deliberated
by the trial court.  

ANG TIONG V. TING        

22 SCRA 713
 

FACTS:
Ting issued a PBCom check payable to cash or bearer.  This was indorsed by Ang at
the back and it was received by plaintiff.  Upon encashment of the  check,  the 
same  was  dishonored.    Plaintiff  moved  that  the  two  make good  the 
value  of  the  check  but  despite  demands,  he  was  unheeded, prompting him
to file a complaint.  The trial court decided in his favor.   
 

HELD:
Even  on  the  assumption  that  the  appellant  was  an  accommodation indorser,
as he professes to be, he is nevertheless by the clear mandate of section 29,
liable on the instrument to a holder for value, notwithstanding that such  holder
at the time of taking the instrument knew him to be an accommodation  party.   
And  assuming  that  he  was  an  accommodation party,  he  may  obtain 
security  from  the  maker  to  protect  himself  against the danger of
insolvency of the latter but this doesn't affect his liability to the appellee,
as the said remedy is a matter of recourse between him and the maker.  

REPUBLIC V. EBRADA

65 SCRA 680
 

FACTS:
Ebrada encashed a “Back Pay Check” issued by the Bureau of Treasury at the 
Republic  Bank  in  Escolta  Manila.  The  Bureau  of  Treasury  advised  the
Republic  Bank  that  the  instrument  was  forged.  It  informed  the  bank 
that the original payee of the check died 11 years before the check was issued. 
Therefore, there was a forgery of his signature. 
 
This is the sequence: 
Martin Lorenzo 
The    deceased    person,    original 
“payee”,     where     the     forgery 
happened 
Ramon Lorenzo 
 
Delia Dominguez 
 
Mauricia Ebrada 
Defendant-appelant 
 
Ebrada  refuses  to  return  the  proceeds  of  the  check  claiming  that  she
already  gave  it  to  Delia  Dominguez.    She  also  claims  that  she  is  a 
HDC (holder in due course) and that the bank is already estopped. 
 
HELD: 
 
Ebrada  should  return  the  proceeds  of  the  check  to  Republic  Bank.  As 
an indorser of the check,  she was supposed to have warranted that she has good
title to said check.  See Section 65.  
 
Section 23:  When the 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 instruments, or to give a  discharge 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.  
 
It  is  only  the  negotiation  based  on  the  forged  or  unauthorized 
signature 
which is inoperative. Therefore: 
 
Martin Lorenzo 
Signature inoperative 
Ramon Lorenzo 
To Dominguez:  operative 
Delia Dominguez 
To Ebrada:  operative 
Mauricia Ebrada 
 
 
Drawee bank can collect from the one who encashed the check.  If Ebrada
performed  the  duty  of  ascertaining  the  genuiness  of  the  check,  in  all
probability, the forgery wouyld have been detected and the fraud defeated. 

BPI V. CA

216 SCRA 51
 
FACTS:
Someone  who  identified  herself  to  be  Fernando  called  up BPI,  requesting
for  the  pre-termination  of  her  money  market  placement  with  the  bank. 
The person who took the call didn't bother to verify with Fernando’s office if
whether  or  not  she  really  intended  to  preterminate  her  money  market 
placement.  Instead, he relied on the verification stated by the caller.  He
proceeded  with  the  processing  of  the  termination.    Thereafter,  the 
caller gave  delivery  instructions  that  instead  of  delivering  the  checks 
to  her office, it would be picked up by her niece and it indeed happen as such. 
It was  found  out  later  on  that  the  person  impersonated  Fernando  and 
her alleged  niece  in  getting  the  checks.    The  dispatcher  also  didn't 
bother  to get the promissory note evincing the placement when he gave the checks
to  the  impersonated  niece.    This  was  aggravated  by  the  fact  that  this
impersonator opened an account with the bank and deposited the subject checks. 
It then withdrew the amounts. 
 
The day of the maturity of the money market placement happened and the real 
Fernando  surfaced  herself.    She  denied  preterminating  the  money market
placements and though she was the payee of the checks in issue, she  didn't 
receive  any  of  its  proceeds.    This  prompted  the  bank  to 
surrender  to  CBC  the  checks  and  asking  for  reimbursement  on  alleged
forgery of payee’s indorsements.   
 

HELD:
The  general  rule  shall  apply  in  this  case.    Since  the payee’s 
indorsement has   been   forged,   the   instrument   is   wholly  
inoperative.      However, underlying circumstances of the case show that the
general rule on forgery isn’t applicable.  The issue as to who between the
parties should bear the 
loss in the payment of the forged checks necessitates the determination of the 
rights  and  liabilities  of  the  parties  involved  in  the  controversy  in
relation to the forged checks.   
 
The acts of the employees of BPI were tainted with more negligence if not
criminal than the acts of CBC.  First, the act of disclosing information about
the money market placement over the phone is a violation of the General Banking 
Law.    Second,  there  was  failure  on  the  bank’s  part  to  even compare the
signatures during the termination of the placement, opening of  a  new  account 
with  the  specimen  signature  in  file  of  Fernando.    And third,  there 
was  failure  to  ask  the  surrender  of  the  promissory  note evidencing the
placement.   
 
The  acts  of  BPI  employees  was  the  proximate  cause  to  the  loss. 
Nevertheless, the negligence of the employees of CBC should be taken also into
consideration.  They closed their eyes to the suspicious large amount withdrawals
made over the counter as well as the opening of the account. 
Bank of America, NT and SA vs. Associated Citizens Bank G.R. No. 141001, May
21, 2009
MARCH 16, 2014LEAVE A COMMENT

The Bank is under strict liability, based on the contract between the bank and
its customer (drawer), to pay the check only to the payee or the payee’s order.
The drawer’s instructions are reflected on the face and by the terms of the
check. When the drawee bank pays a person other than the payee named on the
check, it does not comply with the terms of the check and violates its duty to
charge the drawer’s account only for properly payable items.
Facts:    BA-Finance Corporation (BA Finance) and Miller Offset Press, Inc.
(Miller) entered into a credit line facility agreement whereby Miller can
discount and assign its trade receivables with the BA Finance. At the same time,
Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng, acting for Miller, executed
a Continuing Suretyship Agreement with BA-Finance.  Under the agreement,  they
jointly and severally guaranteed the full and prompt payment of any and all
indebtedness which Miller may incur with BA-Finance.

Miller discounted and assigned several trade receivables to BA-Finance by

executing Deeds of Assignment in favor of the latter. In consideration thereof,
BA-Finance issued four checks payable to the order of Miller with the notation
“For Payee’s Account Only.” These checks were drawn against Bank of America. The
four checks were deposited by Ching Uy Seng in Associated Citizens Bank with his
joint account with Uy Chung Seng. Associated Bank stamped the checks and
guaranteed all prior endorsements and/or lack of endorsements and sent them
through clearing. Later, Bank of America as drawee bank honored the checks and
paid the proceeds to Associated Bank as the collecting bank. When Miller failed
to deliver to BA-Finance the proceeds of the assigned trade receivables, BA-
Finance filed a collection suit against Miller and impleaded the three
representative of the latter.

Bank of America filed a third party complaint against Associated Bank. In its
answer to the third party complaint, Associated Bank admitted having received the
four checks for deposit in the joint account of Ching Uy Seng and Uy Chung Guan
Seng, but alleged that Ching Uy Seng, being one of the corporate officers of
Miller, was duly authorized to act for and on behalf of Miller.

Issues: Whether or not Bank of America is liable to pay BA-Finance and whether or
not Associated Bank should reimburse Bank of America the amount of the four
checks.

Held:    The bank on which a check is drawn, known as the drawee bank, is under
strict liability, based on the contract between the bank and its customer
(drawer), to pay the check only to the payee or the payee’s order. The drawer’s
instructions are reflected on the face and by the terms of the check. When the
drawee bank pays a person other than the payee named on the check, it does not
comply with the terms of the check and violates its duty to charge the drawer’s
account only for properly payable items.  On the part of Associated 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. In presenting
the checks for clearing and for payment, the defendant [collecting bank] made an
express guarantee on the validity of “all prior endorsements.” Thus, stamped at
the back of the checks are the defendant’s clear warranty. As the warranty has
proven to be false and inaccurate, Associated Bank is liable for any damage
arising out of the falsity of its representation.

Held:    A bank that regularly processes checks that are neither payable to the
customer nor duly indorsed by the payee is apparently grossly negligent in its
operations. This Court has recognized the unique public interest possessed by the
banking industry and the need for the people to have full trust and confidence in
their banks. For this reason, banks are minded to treat their customer’s accounts
with utmost care, confidence, and honesty. In a checking transaction, the drawee
bank has the duty to verify the genuineness of the signature of the drawer and to
pay the check strictly in accordance with the drawer’s instructions, i.e., to the
named payee in the check. It should charge to the drawer’s accounts only the
payables authorized by the latter. Otherwise, the drawee will be violating the
instructions of the drawer and it shall be liable for the amount charged to the
drawer’s account. Rodriguez checks are payable to order since the bank failed to
prove that the named payees therein are fictitious.

Hence, the fictitious-payee rule which will make the instrument payable to bearer
does not apply. PNB accepted the 69 checks for deposit to the PEMSLA account even
without any indorsement from the named payees. It bears stressing that order
instruments can only be negotiated with a valid indorsement.

TUAZON V. HEIRS OF BARTOLOME RAMOS

463 SCRA 408

FACTS:
Respondents  alleged  that  on  a  relevant  date,  spouses  Tuazon  purchased
from their predecessor-in-interest cavans of rice.  That on the total number of
cavans, only a certain portion  has been paid for.  In payment thereof, checks
have been issued but on presentment, the checks were dishonored.  Respondents 
alleged  that  since  spouses  anticipated  the  forthcoming  suit against them,
they made fictitious sales over their properties.  As defense, the spouses
averred that it was the wife of Bartolome who effected the sale and that Maria
was merely her agent in selling the rice.  The true buyer of the cavans was
Santos.  The spouses further averred that when Ramos got the check from Santos,
she took it in good faith and didn't knew that the same were unfunded.  

HELD:
First, there is no contract of agency.

If  it  was  truly  the  intention  of  the  parties  to  have  a  contract  of 
agency, then when the spouses sued Santos on a separate civil action, they should
have instituted the same on behalf and for the respondents.  They didn't do
so.    The filing in their own names negate their claim that they acted as
mere agents in selling the rice.

Second, the spouses are liable on the check.

As  indorser,  Tuazon  warranted  that  upon  due  presentment,  according  to

their  tenor,  and  that  in  case  they  were  dishonored,  she  would  pay  the
corresponding  amount.    After  the  instrument  is  dishonored  by  non-
payment,  indorsers  cease  to  be  merely  secondarily  liable.    They  became
principal  debtors  whose  liability  becomes  identical  to  that  of  the 
original obligor.    The  holder  of  a  negotiable  instrument  need  not  even 
proceed against   the   maker   before   suing   the   indorser.      Santos  
is   not   an indispensable party to the suit against the spouses.

CESAR V. AREZA AND LOLITA B. AREZA, PETITIONERS, VS.EXPRESS SAVINGS BANK,

INC. AND MICHAEL POTENCIANO, RESPONDENTS.
G.R. No. 176697 / September 10, 2014 / J. Perez
Facts:
Petitioners Cesar V. Areza and Lolita B. Areza have two bank deposits with
respondent
Express Savings Bank. They were engaged in the business of “buy and sell” of
brand new
and second-hand motor vehicles. On May 2, 2000, they received an order from a
certain
Gerry Mambuay for the purchase of a second-hand Mitsubishi Pajero and a brand-new
Honda
CRV.
The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs
Office
(PVAO) checks payable to different payees and drawn against the Philippine
Veterans Bank,
each valued at Two Hundred Thousand Pesos (P200,000.00) for a total of One
Million Eight
Hundred Thousand Pesos (P1,800,000.00).
Michael Potenciano, the branch manager of Express Savings Bank, was present
during the transaction and immediately offered the services of the bank for the
processing
and eventual crediting of the checks to the account of the petitioners because
the Arezas
were valued clients of the bank.
The petitioners then deposited the checks to Express Savings Bank which in turn
deposited the checks with its depository bank, Equitable-PCI Bank. Equitable-PCI
Bank then
presented the checks to the drawee bank, Philippine Veterans Bank, which honoured
the
checks.
Sometime in July 2000, the checks were returned by PVAO to the drawee on the
ground that the amount on the face of the checks was altered from the original
amount of
P4,000.00 to P200,000.00. The drawee bank, in turn, returned the checks to
Equitable-PCI
Bank. Equitable-PCI Bank then informed Express Savings Bank that the drawee
dishonored
the checks on the ground of material alterations. It also debited the deposit
account of
Express Savings Bank in the amount of P1,800,000.00. Express Savings Bank
insisted that it
informed the petitioners of what happened to the checks. On the other hand, the
petitioners
maintained that the said bank never informed them of the said progress.
The petitioners then issued a check in the amount of P500,000.00 but it was
dishonored. They demanded the bank to honor the check but it refused. Instead, it
closed
the Special Savings Account of the petitioners with a balance of P1,179,659.69
and
transferred said amount to their savings account. Express Savings Bank then
withdrew the
amount of P1,800,000.00 representing the returned checks from petitioners’
savings
account.
The petitioners filed a Complaint for Sum of Money with Damages against Express
Savings Bank and Potenciano for the alleged arbitrary and groundless dishonouring
of their
checks and the unlawful and unilateral withdrawal from their savings account.
The RTC, through Judge Antonio S. Pozas, initially ruled in favor of the
petitioners but
the same court, through Pairing Judge Romeo C. De Leon, eventually granted the
Motion for
Reconsideration filed by the respondents and set aside the Pozas Decision. On
appeal, the
Court of Appeals affirmed the ruling of the RTC. Hence, this petition for review
on certiorari.
Issues:
I.
Whether or not the drawee bank is liable for the altered tenor of acceptance in
case
the negotiable instrument is altered before acceptance.

II.

Whether or not the respondent bank has the right to debit P1,800,000.00 from the
petitioners’ accounts.

Ruling:

I.
Section 63 of Act No. 2031 or the Negotiable Instruments Law provides that the
acceptor, by accepting the instrument, engages that he will pay it according to
the tenor of
his acceptance. The acceptor is a drawee who accepts the bill. In Philippine
National Bank v.
Court of Appeals, the payment of the amount of a check implies not only
acceptance but
also compliance with the drawee’s obligation.
In case the negotiable instrument is altered before acceptance, is the drawee
liable
for the original or the altered tenor of acceptance? There are two divergent
intepretations
proffered by legal analysts. The first view is that the obligation of the
acceptor should be
limited to the tenor of the instrument as drawn by the maker, as was the rule at
common
law, but that it should be enforceable in favor of a holder in due course against
the acceptor
according to its tenor at the time of its acceptance or certification.
The second view is that the acceptor/drawee despite the tenor of his
acceptance is liable only to the extent of the bill prior to alteration. This
view
appears to be in consonance with Section 124 of the Negotiable Instruments Law
which states that a material alteration avoids an instrument except as against an
assenting party and subsequent indorsers, but a holder in due course may
enforce payment according to its original tenor. Thus, when the drawee bank pays
a
materially altered check, it violates the terms of the check, as well as its duty
to charge its
client’s account only for bona fide disbursements he had made. If the drawee did
not pay
according to the original tenor of the instrument, as directed by the drawer,
then it has no
right to claim reimbursement from the drawer, much less, the right to deduct the
erroneous
payment it made from the drawer’s account which it was expected to treat with
utmost
fidelity. The drawee, however, still has recourse to recover its loss. It may
pass the liability
back to the collecting bank which is what the drawee bank exactly did in this
case. It debited
the account of Equitable-PCI Bank for the altered amount of the checks.
II.
No. The Bank cannot debit the savings account of petitioners. A
depositary/collecting
bank may resist or defend against a claim for breach of warranty if the drawer,
the payee, or
either the drawee bank or depositary bank was negligent and such negligence
substantially
contributed to the loss from alteration. In the instant case, no negligence can
be attributed
to petitioners. We lend credence to their claim that at the time of the sales
transaction, the
Bank’s branch manager was present and even offered the Bank’s services for the
processing
and eventual crediting of the checks. True to the branch manager’s words, the
checks were
cleared three days later when deposited by petitioners and the entire amount of
the checks
was credited to their savings account.
Moreover, the Bank cannot set-off the amount it paid to Equitable-PCI Bank with
petitioners’ savings account. Under Art. 1278 of the New Civil Code, compensation
shall take
place when two persons, in their own right, are creditors and debtors of each
other. It is wellsettled that the relationship of the depositors and the Bank or
similar institution is that of
creditor-debtor. But as previously discussed, petitioners are not liable for the
deposit of the
altered checks. The Bank, as the depositary and collecting bank ultimately bears
the loss.
Thus, there being no indebtedness to the Bank on the part of petitioners, legal
compensation cannot take place.
To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable
to the
extent of the check prior to alteration. Since Philippine Veterans Bank paid the
altered

amount of the check, it may pass the liability back as it did, to Equitable-PCI
Bank,
collecting bank. The collecting banks, Equitable-PCI Bank and Express Savings
Bank,
ultimately liable for the amount of the materially altered check. It cannot
further pass
liability back to the petitioners absent any showing in the negligence on the
part of
petitioners which substantially contributed to the loss from alteration.

METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK CORPORATION)  V. BA

FINANCE CORPORATION and MALAYAN INSURANCE CO. INC.
[G.R. No. 179952, Dec. 4, 2009] (607 SCRA 620)

FACTS:
            Lamberto Bitanga (Bitanga) obtained from respondent BA Finance
Corporation (BA Finance)  a loan to secure which, he mortgaged his car to
respondent BA Finance. Bitanga thus had the mortgaged car insured by respondent
Malayan Insurance Co., Inc. (Malayan Insurance). The car was stolen. On Bitangas
claim, Malayan Insurance issued a check payable to the order of B.A. Finance
Corporation and Lamberto Bitanga for P224,500, drawn against China Banking
Corporation (China Bank). The check was crossed with the notation For Deposit
Payees Account Only.
            Without the indorsement or authority of his co-payee BA Finance,
Bitanga deposited the check to his account with the Asianbank Corporation
(Asianbank), now merged with petitioner Metropolitan Bank and Trust Company
(Metrobank). Bitanga subsequently withdrew the entire proceeds of the check.
            In the meantime, Bitangas loan became past due, but despite demands,
he failed to settle it. BA Finance thereupon demanded the payment of the value of
the check from Asianbank but to no avail, prompting it to file a complaint for
sum of money and damages against Asianbank and Bitanga alleging that, inter alia,
it is entitled to the entire proceeds of the check.
            On the issue of whether or not BA Finance has a cause of action,
Metrobank  contends that Bitanga is authorized to indorse the check as the drawer
names him as one of the payees. Moreover, his signature is not a forgery nor has
he or anyone forged the signature of the representative of BA Finance
Corporation. No unauthorized indorsement appears on the check. Absent the
indispensable fact of forgery or unauthorized indorsement, the payee may not
recover from the collecting bank.
ISSUE 1:
            Whether BA Finance has a cause of action against Metrobank even if
the subject check had not been delivered to BA Finance by the issuer itself?
HELD:
            YES. Section 41 of the Negotiable Instruments Law provides:
            Where an instrument is payable to the order of two or more payees or
indorsees who are not partners, all must indorse unless the one indorsing has
authority to indorse for the others.
            Bitanga alone endorsed the crossed check, and petitioner allowed the
deposit and release of the proceeds thereof, despite the absence of authority of
Bitangas co-payee BA Finance to endorse it on its behalf. Petitioners argument
that since there was neither forgery, nor unauthorized indorsement because
Bitanga was a co-payee in the subject check, the dictum in Associated Bank v.
CA does not apply in the present case fails. The payment of an instrument over a
missing indorsement is the equivalent of payment on a forged indorsement or an
unauthorized indorsement in itself in the case of joint payees.
            Accordingly, one who credits the proceeds of a check to the account
of the indorsing payee is liable in conversion to the non-indorsing payee for
the entireamount of the check.
ISSUE 2:
            Is Metrobank liable to BA Finance for the full value of the check,
under the Negotiable Instruments Law?
HELD:
            YES. Section 68 of the Negotiable Instruments Law instructs that
joint payees who indorse are deemed to indorse jointly and severally. When the
maker dishonors the instrument, the holder thereof can turn to those secondarily
liable the indorser for recovery.
            A collecting bank, Asianbank in this case, where a check is deposited
and which indorses the check upon presentment with the drawee bank, is an
indorser. his is because in indorsing a check to the drawee bank, a collecting
bank stamps the back of the check with the phrase all prior endorsements and/or
lack of endorsement guaranteed and, for all intents and purposes, treats the
check as a negotiable instrument, hence, assumes the warranty of an indorser.
            Petitioner, as the collecting bank or last indorser, generally
suffers the loss because it has the duty to ascertain the genuineness of all
prior indorsements 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 prior indorsements.

THE INTERNATIONAL CORPORATE BANK V. SPOUSES GUECO

351 SCRA 516

FACTS:
Gueco spouses obtained a loan from ICB (now Union Bank) to purchase a car.  In 
consideration  thereof,  the  debtors  executed  PNs,  and  a  chattel mortgage 
was  made  over  the  car.    As  the  usual  story  goes,  the  spouses
defaulted  in  payment  of  their  obligations  and  despite  the  lowering  of 
the  amount  to  be  paid,  they  still  failed  to  pay.    Thereafter,  they 
tendered  a manager’s  check  in  favor  of  the  bank.    Nonetheless,  the 
car  was  still detained for the spouses refused to sign the joint motion to
dismiss.  The bank  averred  that  the  joint  motion  to  dismiss  is  part  of 
standard  office procedure  to  preclude  the  filing  of  other  claims.   
Because  of  this,  the spouses filed an action for damages against the bank. 
And by the time the case was instituted, the check had become stale in the hands
of the bank. 
 

HELD:
The main issue though unrelated to Negotiable Instruments Law in this case was
whether or not the signing of the joint motion to dismiss a part of the
compromise agreement between the spouses and the bank.  The answer is no, it is
not a part of the compromise agreement entered by the parties.  And thus, the
signing is dispensible in releasing the car to the spouses.  And on the ancillary
issue of the case, which is the relevant issue for the subject, whether or not
the spouses should replace the check they paid to the  bank  after  it  became 
stale,  the  answer  is  yes.  It  appeared  that  the check has not been
encashed. The delivery of the manager’s check did not constitute payment. The
original obligation to pay still exists. Indeed, the circumstances  that  caused 
the  non-presentment  of  the  check  should  be considered to determine who 
should bear the  loss. In this case, ICB held on the check and refused to encash
the same because of the controversy surrounding the signing of the joint motion
to dismiss. There is no bad faith 
or negligence on the part of ICB.  
  
A  stale  check  is  one  which  has  not  been  presented  for  payment  within 
a reasonable time after its issue. It is valueless and, therefore, should not be
paid.  A  check  should  be  presented  for  payment  within  a  reasonable  time
after  its  issue.  Here,  what  is  involved  is  a  manager’s  check,  which 
is 
essentially a bank’s own check and may be treated as a PN with the bank as a
maker. Even assuming that presentment is needed, failure to present for  payment 
within  a  reasonable  time  will  result  to  the  discharge  of  the drawer
only to the extent of the loss caused by the delay—but here there is 
no loss sustained. Still, such failure to present on time does not wipe out
liability.  

Gullas VS PNB

Facts: On august 2, 1933 the Treasurer of the United states Veterans Bureau
issued a warrant in the amount of $361. Atty. Paulino Gullas and Pedro Lopez
signed as endorsers of this check which was cashed by PNB and dishonored by
insular treasurer. The  outstanding balance of Atty. Gullas on the books of the
bank was P509. Gullas left his residence for Manila so the notices of dishonor,
informing him that the amount of $366 was applied to his outstanding balance, was
not received by him. Upon his return from Cebu, he paid the balance inconvenience
to his account, which are the insurance unpaid due to lack of credit and the
periodicals in the vicinity

ISSUE: Whether or not the bank had the right to automatically credit Gullas
account, and it was not prejudicial to him

RULING: It has been held a long line of authorities that notice of dishonor is in
order to charge all the endorser and that the right of action against him does
not accrue until the notice is given. A bank has a right to set off the deposits
in its hands for the payment of any indebtness to in on the part of a depositor.
However this may be, as to an endorser the situation is different, and notices
should actually have been given to him in order that he might protect his
interests.