Guide Questions

Kauffman v PNB
When should the provision of the NIL be applied?
In this court the defense is mainly, if not exclusively, based upon the proposition that, inasmuch as the plaintiff Kauffman
was not a party to the contract with the bank for the transmission of this credit, no right of action can be vested in him for
the breach thereof. "In this situation," — we here quote the words of the appellant's brief, — "if there exists a cause of
action against the defendant, it would not be in favor of the plaintiff who had taken no part at all in the transaction nor had
entered into any contract with the plaintiff, but in favor of the Philippine Fiber and Produce Company, the party which
contracted in its own name with the defendant."
The question thus placed before us is one purely of law; and at the very threshold of the discussion, it can be stated that
the provisions of the Negotiable Instruments Law can come into operation there must be a document in existence of the
character described in section 1 of the Law; and no rights properly speaking arise in respect to said instrument until it is
delivered. In the case before us there was an order, it is true, transmitted by the defendant bank to its New York branch,
for the payment of a specified sum of money to George A. Kauffman. But this order was not made payable "to order or
"to bearer," as required in subsection (d) of that Act; and inasmuch as it never left the possession of the bank, or its
representative in New York City, there was no delivery in the sense intended in section 16 of the same Law. In this
connection it is unnecessary to point out that the official receipt delivered by the bank to the purchaser of the telegraphic
order, and already set out above, cannot itself be viewed in the light of a negotiable instrument, although it affords
complete proof of the obligation actually assumed by the bank.
Stated in bare simplicity the admitted facts show that the defendant bank for a valuable consideration paid by the
Philippine Fiber and Produce Company agreed on October 9, 1918, to cause a sum of money to be paid to the plaintiff in
New York City; and the question is whether the plaintiff can maintain an action against the bank for the nonperformance
of said undertaking. In other words, is the lack of privity with the contract on the part of the plaintiff fatal to the
maintenance of an action by him?
The only express provision of law that has been cited as bearing directly on this question is the second paragraph of article
1257 of the Civil Code; and unless the present action can be maintained under the provision, the plaintiff admittedly has
no case. This provision states an exception to the more general rule expressed in the first paragraph of the same article to
the effect that contracts are productive of effects only between the parties who execute them; and in harmony with this
general rule are numerous decisions of this court (Wolfson vs. Estate of Martinez, 20 Phil., 340; Ibañez de
Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584; Manila Railroad Co. vs. Compañia
Trasatlantica and Atlantic, Gulf and Pacific Co., 38 Phil., 873, 894.)
The paragraph introducing the exception which we are now to consider is in these words:
Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment, provided he has
given notice of his acceptance to the person bound before the stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.)
In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation upon the history and
interpretation of the paragraph above quoted and so complete is the discussion contained in that opinion that it would be
idle for us here to go over the same matter. Suffice it to say that Justice Trent, speaking for the court in that case, sums up
its conclusions upon the conditions governing the right of the person for whose benefit a contract is made to maintain an
action for the breach thereof in the following words:
So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the interest of a third person in a
contract is a stipulation pour autrui, or merely an incidental interest, is to rely upon the intention of the parties as
disclosed by their contract.
If a third person claims an enforcible interest in the contract, the question must be settled by determining whether the
contracting parties desired to tender him such an interest. Did they deliberately insert terms in their agreement with the
avowed purpose of conferring a favor upon such third person? In resolving this question, of course, the ordinary rules of
construction and interpretation of writings must be observed. (Uy Tam and Uy Yet vs. Leonard, supra.)
Further on in the same opinion he adds: "In applying this test to a stipulation  pour autrui, it matters not whether the
stipulation is in the nature of a gift or whether there is an obligation owing from the promise to the third person. That no
such obligation exists may in some degree assist in determining whether the parties intended to benefit a third person,
whether they stipulated for him." (Uy Tam and Uy Yet vs. Leonard, supra.)
In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough; for it is
undeniable that the bank's promise to cause a definite sum of money to be paid to the plaintiff in New York City is a
stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances under which that
promise was given disclose an evident intention on the part of the contracting parties that the plaintiff should have the
money upon demand in New York City. The recognition of this unqualified right in the plaintiff to receive the money
implies in our opinion the right in him to maintain an action to recover it; and indeed if the provision in question were not
applicable to the facts now before us, it would be difficult to conceive of a case arising under it.
It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor
must signify his acceptance before it has been revoked. In this case the plaintiff clearly signified his acceptance to the
bank by demanding payment; and although the Philippine National Bank had already directed its New York agency to
withhold payment when this demand was made, the rights of the plaintiff cannot be considered to as there used, must be
understood to imply revocation by the mutual consent of the contracting parties, or at least by direction of the party
purchasing he exchange.
In the course of the argument attention was directed to the case of Legniti vs. Mechanics, etc. Bank (130 N.E. Rep., 597),
decided by the Court of Appeals of the State of New York on March 1, 1921, wherein it is held that, by selling a cable
transfer of funds on a foreign country in ordinary course, a bank incurs a simple contractual obligation, and cannot be
considered as holding the money which was paid for the transfer in the character of a specific trust. Thus, it was said,
"Cable transfers, therefore, mean a method of transmitting money by cable wherein the seller engages that he has the
balance at the point on which the payment is ordered and that on receipt of the cable directing the transfer his
correspondent at such point will make payment to the beneficiary described in the cable. All these transaction are matters
of purchase and sale create no trust relationship."
As we view it there is nothing in the decision referred to decisive of the question now before us, wish is merely that of the
right of the beneficiary to maintain an action against the bank selling the transfer.
Upon the considerations already stated, we are of the opinion that the right of action exists, and the judgment must be
affirmed. It is so ordered, with costs against the appellant. Interest will be computed as prescribed in section 510 of the
Code of Civil Procedure.
Phil. Educ v soriano
The first, second and fifth assignments of error discussed in appellant's brief are related to the other and will therefore be
discussed jointly. They raise this main issue: that the postal money order in question is a negotiable instrument; that its
nature as such is not in anyway affected by the letter dated October 26, 1948 signed by the Director of Posts and
addressed to all banks with a clearing account with the Post Office, and that money orders, once issued, create a
contractual relationship of debtor and creditor, respectively, between the government, on the one hand, and the remitters
payees or endorses, on the other.
It is not disputed that our postal statutes were patterned after statutes in force in the United States. For this reason, ours are
generally construed in accordance with the construction given in the United States to their own postal statutes, in the
absence of any special reason justifying a departure from this policy or practice. The weight of authority in the United
States is that postal money orders are not negotiable instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock
Drawers National Bank, 30 Fed. 912), the reason behind this rule being that, in establishing and operating a postal money
order system, the government is not engaging in commercial transactions but merely exercises a governmental power for
the public benefit.
It is to be noted in this connection that some of the restrictions imposed upon money orders by postal laws and regulations
are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually provide for
not more than one endorsement; payment of money orders may be withheld under a variety of circumstances (49 C.J.
1153).
Of particular application to the postal money order in question are the conditions laid down in the letter of the Director of
Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the redemption of postal money orders received by it
from its depositors. Among others, the condition is imposed that "in cases of adverse claim, the money order or money
orders involved will be returned to you (the bank) and the, corresponding amount will have to be refunded to the
Postmaster, Manila, who reserves the right to deduct the value thereof from any amount due you if such step is deemed
necessary." The conditions thus imposed in order to enable the bank to continue enjoying the facilities theretofore enjoyed
by its depositors, were accepted by the Bank of America. The latter is therefore bound by them. That it is so is clearly
referred from the fact that, upon receiving advice that the amount represented by the money order in question had been
deducted from its clearing account with the Manila Post Office, it did not file any protest against such action.
Moreover, not being a party to the understanding existing between the postal officers, on the one hand, and the Bank of
America, on the other, appellant has no right to assail the terms and conditions thereof on the ground that the letter setting
forth the terms and conditions aforesaid is void because it was not issued by a Department Head in accordance with Sec.
79 (B) of the Revised Administrative Code. In reality, however, said legal provision does not apply to the letter in
question because it does not provide for a department regulation but merely sets down certain conditions upon the
privilege granted to the Bank of Amrica to accept and pay postal money orders presented for payment at the Manila Post
Office. Such being the case, it is clear that the Director of Posts had ample authority to issue it pursuant to Sec. 1190 of
the Revised Administrative Code.
In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and fourth assignments of
error.
Salas v CA
The pivotal issue in this case is whether the promissory note in question is a negotiable instrument which will bar
completely all the available defenses of the petitioner against private respondent.

Petitioner's liability on the promissory note, the due execution and genuineness of which she never denied under oath is,
under the foregoing factual milieu, as inevitable as it is clearly established.

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.

Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp., 6 this Court had the
occasion to clearly distinguish between a negotiable and a non-negotiable instrument.

Among others, the instrument in order to be considered negotiable must contain the so-called "words of negotiability —
i.e., must be payable to "order" or "bearer"". 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. Such being the situation in the above-cited case, it was
held that therein private respondent is not a holder in due course but a mere assignee against whom all defenses available
to the assignor may be raised. 7
In the case at bar, however, the situation is different. Indubitably, the basis of private respondent's claim against petitioner
is a promissory note which bears all the earmarks of negotiability.
The pertinent portion of the note reads:

PROMISSORY NOTE
(MONTHLY)

P58,138.20
San Fernando, Pampanga, Philippines
Feb. 11, 1980

For value received, I/We jointly and severally, promise to pay Violago Motor Sales Corporation or order, at its office in
San Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT & 201/100
ONLY (P58,138.20) Philippine currency, which amount includes interest at 14% per annum based on the diminishing
balance, the said principal sum, to be payable, without need of notice or demand, in installments of the amounts following
and at the dates hereinafter set forth, to wit: P1,614.95 monthly for "36" months due and payable on the 21st day of each
month starting March 21, 1980 thru and inclusive of February 21, 1983. P_________ monthly for ______ months due and
payable on the ______ day of each month starting _____198__ thru and inclusive of _____, 198________ provided that
interest at 14% per annum shall be added on each unpaid installment from maturity hereof until fully paid.

xxx xxx xxx

Maker; Co-Maker:

(SIGNED) JUANITA SALAS _________________

Address:

____________________ ____________________

WITNESSES

SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE

TAN # TAN #

PAY TO THE ORDER OF

FILINVEST FINANCE AND LEASING CORPORATION

VIOLAGO MOTOR SALES CORPORATION

BY: (SIGNED) GENEVEVA V. BALTAZAR
Cash Manager 8

A careful study of the questioned promissory note shows that it is a negotiable instrument, having complied with the
requisites under the law as follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an
unconditional promise to pay the amount of P58,138.20; [c] it is payable at a fixed or determinable future time which is
"P1,614.95 monthly for 36 months due and payable on the 21 st day of each month starting March 21, 1980 thru and
inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the drawee is
named or indicated with certainty. 9

It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and Leasing
Corporation 10 and it is an indorsement of the entire instrument. 11
Under the circumstances, there appears to be no question that Filinvest is a holder in due course, having 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. 12

Accordingly, respondent corporation 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. 13 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.

Hence, we reach a similar opinion as did respondent court when it held:

We can only extend our sympathies to the defendant (herein petitioner) in this unfortunate incident. Indeed, there is
nothing We can do as far as the Violago Motor Sales Corporation is concerned since it is not a party in this case. To even
discuss the issue as to whether or not the Violago Motor Sales Corporation is liable in the transaction in question would
amount, to denial of due process, hence, improper and unconstitutional. She should have impleaded Violago Motor
Sales.14

IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED. With costs against petitioner.
SO ORDERED.

Section 1. Form of negotiable instruments. — An instrument to be negotiable must conform to the following
requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
Firestone v CA
The issue for our consideration is whether or not respondent bank should be held liable for damages suffered by
petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips.

The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter purchased tires from the
former with special withdrawal slips drawn upon Fojas-Arca's special savings account with respondent bank. Petitioner in
turn deposited these withdrawal slips with Citibank. The latter credited the same to petitioner's current account, then
presented the slips for payment to respondent bank. It was at this point that the bone of contention arose.

On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and 42129 dated June 15,
1978 and August 15, 1978, respectively, were refused payment by respondent bank due to insufficiency of Fojas-Arca's
funds on deposit. That information came about six months from the time Fojas-Arca purchased tires from petitioner using
the subject withdrawal slips. Citibank then debited the amount of these withdrawal slips from petitioner's account, causing
the alleged pecuniary damage subject of petitioner's cause of action.

At the outset, we note that petitioner admits that the withdrawal slips in question were non-negotiable.9 Hence, the rules
governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case.10 Petitioner
itself concedes this point.11 Thus, respondent bank was under no obligation to give immediate notice that it would not
make payment on the subject withdrawal slips. Citibank should have known that withdrawal slips were not negotiable
instruments. It could not expect these slips to be treated as checks by other entities. Payment or notice of dishonor from
respondent bank could not be expected immediately, in contrast to the situation involving checks.

In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development Bank, had honored
and paid the previous withdrawal slips, automatically credited petitioner's current account with the amount of the subject
withdrawal slips, then merely waited for the same to be honored and paid by respondent bank. It presumed that the
withdrawal slips were "good."

It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal slips. The essence of
negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a
substitute for money.12 The withdrawal slips in question lacked this character.

A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account consists only
of a few hundred pesos or of millions of pesos.13 The fact that the other withdrawal slips were honored and paid by
respondent bank was no license for Citibank to presume that subsequent slips would be honored and paid immediately. By
doing so, it failed in its fiduciary duty to treat the accounts of its clients with the highest degree of care.14

In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on the basis of
deposit slips prepared and signed by the depositor, or the latter's agent or representative, who indicates therein the current
account number to which the deposit is to be credited, the name of the depositor or current account holder, the date of the
deposit, and the amount of the deposit either in cash or in check.15

The withdrawal slips deposited with petitioner's current account with Citibank were not checks, as petitioner admits.
Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted them
as such, Citibank — and petitioner as account-holder — must bear the risks attendant to the acceptance of these
instruments. Petitioner and Citibank could not now shift the risk and hold private respondent liable for their admitted
mistake.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 29546 is
AFFIRMED. Costs against petitioner.

SO ORDERED.
PNB V RODRIGUEZ
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a
bearer instrument. A check is "a bill of exchange drawn on a bank payable on demand."11 It is either an order or a bearer
instrument. Sections 8 and 9 of the NIL states:

SEC. 8. When payable to order. – The instrument is payable to order where it is drawn payable to the order of a specified
person or to him or his order. It may be drawn payable to the order of –

(a) A payee who is not maker, drawer, or drawee; or

(b) The drawer or maker; or

(c) The drawee; or

(d) Two or more payees jointly; or

(e) One or some of several payees; or

(f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable
certainty.

SEC. 9. When payable to bearer. – The instrument is payable to bearer –

(a) When it is expressed to be so payable; or

(b) When it is payable to a person named therein or bearer; or

(c) When it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so
payable; or

(d) When the name of the payee does not purport to be the name of any person; or

(e) Where the only or last indorsement is an indorsement in blank.12 (Underscoring supplied)

The distinction between bearer and order instruments lies in their manner of negotiation. Under Section 30 of the NIL, an
order instrument requires an indorsement from the payee or holder before it may be validly negotiated. A bearer
instrument, on the other hand, does not require an indorsement to be validly negotiated. It is negotiable by mere delivery.
The provision reads:

SEC. 30. What constitutes negotiation. – An instrument is negotiated when it is transferred from one person to another in
such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable
to order, it is negotiated by the indorsement of the holder completed by delivery.

A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the NIL, a check
payable to a specified payee may nevertheless be considered as a bearer instrument if it is payable to the order of a
fictitious or non-existing person, and such fact is known to the person making it so payable. Thus, checks issued to
"Prinsipe Abante" or "Si Malakas at si Maganda," who are well-known characters in Philippine mythology, are bearer
instruments because the named payees are fictitious and non-existent.

We have yet to discuss a broader meaning of the term "fictitious" as used in the NIL. It is for this reason that We look
elsewhere for guidance. Court rulings in the United States are a logical starting point since our law on negotiable
instruments was directly lifted from the Uniform Negotiable Instruments Law of the United States.13

A review of US jurisprudence yields that an actual, existing, and living payee may also be "fictitious" if the maker of the
check did not intend for the payee to in fact receive the proceeds of the check. This usually occurs when the maker places
a name of an existing payee on the check for convenience or to cover up an illegal activity.14 Thus, a check made
expressly payable to a non-fictitious and existing person is not necessarily an order instrument. If the payee is not the
intended recipient of the proceeds of the check, the payee is considered a "fictitious" payee and the check is a bearer
instrument.

In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss. When faced with a
check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. The underlying
theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since the
maker knew this limitation, he must have intended for the instrument to be negotiated by mere delivery. Thus, in case of
controversy, the drawer of the check will bear the loss. This rule is justified for otherwise, it will be most convenient for
the maker who desires to escape payment of the check to always deny the validity of the indorsement. This despite the
fact that the fictitious payee was purposely named without any intention that the payee should receive the proceeds of the
check.15
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank.16 In the said case, the
corporation Mueller & Martin was defrauded by George L. Martin, one of its authorized signatories. Martin drew seven
checks payable to the German Savings Fund Company Building Association (GSFCBA) amounting to $2,972.50 against
the account of the corporation without authority from the latter. Martin was also an officer of the GSFCBA but did not
have signing authority. At the back of the checks, Martin placed the rubber stamp of the GSFCBA and signed his own
name as indorsement. He then successfully drew the funds from Liberty Insurance Bank for his own personal profit.
When the corporation filed an action against the bank to recover the amount of the checks, the claim was denied.

The US Supreme Court held in Mueller that when the person making the check so payable did not intend for the specified
payee to have any part in the transactions, the payee is considered as a fictitious payee. The check is then considered as a
bearer instrument to be validly negotiated by mere delivery. Thus, the US Supreme Court held that Liberty Insurance
Bank, as drawee, was authorized to make payment to the bearer of the check, regardless of whether prior indorsements
were genuine or not.17

The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company, Inc.18 upheld the
fictitious-payee rule. The rule protects the depositary bank and assigns the loss to the drawer of the check who was in a
better position to prevent the loss in the first place. Due care is not even required from the drawee or depositary bank in
accepting and paying the checks. The effect is that a showing of negligence on the part of the depositary bank will not
defeat the protection that is derived from this rule.

However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercial bad faith on the
part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception
will cause it to bear the loss. Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party
to the fraudulent scheme. Said the US Supreme Court in Getty:

Consequently, a transferee’s lapse of wary vigilance, disregard of suspicious circumstances which might have well
induced a prudent banker to investigate and other permutations of negligence are not relevant considerations under
Section 3-405 x x x. Rather, there is a "commercial bad faith" exception to UCC 3-405, applicable when the transferee
"acts dishonestly – where it has actual knowledge of facts and circumstances that amount to bad faith, thus itself
becoming a participant in a fraudulent scheme. x x x Such a test finds support in the text of the Code, which omits a
standard of care requirement from UCC 3-405 but imposes on all parties an obligation to act with "honesty in fact." x x
x19 (Emphasis added)

Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank transferees of the checks.

In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted that the 69 checks were
payable to specific persons. Likewise, it is uncontroverted that the payees were actual, existing, and living persons who
were members of PEMSLA that had a rediscounting arrangement with spouses Rodriguez.

What remains to be determined is if the payees, though existing persons, were "fictitious" in its broader context.
For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend for the named
payees to be part of the transaction involving the checks. At most, the bank’s thesis shows that the payees did not have
knowledge of the existence of the checks. This lack of knowledge on the part of the payees, however, was not tantamount
to a lack of intention on the part of respondents-spouses that the payees would not receive the checks’ proceeds.
Considering that respondents-spouses were transacting with PEMSLA and not the individual payees, it is understandable
that they relied on the information given by the officers of PEMSLA that the payees would be receiving the checks.

Verily, the subject checks are presumed order instruments. This is because, as found by both lower courts, PNB failed to
present sufficient evidence to defeat the claim of respondents-spouses that the named payees were the intended recipients
of the checks’ proceeds. The bank failed to satisfy a requisite condition of a fictitious-payee situation – that the maker of
the check intended for the payee to have no interest in the transaction.

Because of a failure to show that the payees were "fictitious" in its broader sense, the fictitious-payee rule does not apply.
Thus, the checks are to be deemed payable to order. Consequently, the drawee bank bears the loss.20

PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers 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.

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.21 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.22 For this reason, banks are
minded to treat their customer’s accounts with utmost care, confidence, and honesty.23

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.24

In the case at bar, respondents-spouses were the bank’s depositors. The checks were drawn against respondents-spouses’
accounts. PNB, as the drawee bank, had the responsibility to ascertain the regularity of the indorsements, and the
genuineness of the signatures on the checks before accepting them for deposit. Lastly, PNB was obligated to pay the
checks in strict accordance with the instructions of the drawers. Petitioner miserably failed to discharge this burden.

The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement, forged or
otherwise. The facts clearly show that the bank did not pay the checks in strict accordance with the instructions of the
drawers, respondents-spouses. Instead, it paid the values of the checks not to the named payees or their order, but to
PEMSLA, a third party to the transaction between the drawers and the payees.alf-ITC

Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of bank employees is
indispensable to maintain the stability of the banking industry. Thus, banks are enjoined to be extra vigilant in the
management and supervision of their employees. In Bank of the Philippine Islands v. Court of Appeals,25 this Court
cautioned thus:
Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility,
care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and
employees. For obvious reasons, the banks are expected to exercise the highest degree of diligence in the selection and
supervision of their employees.26

PNB’s tellers and officers, in violation of banking rules of procedure, permitted the invalid deposits of checks to the
PEMSLA account. Indeed, when it is the gross negligence of the bank employees that caused the loss, the bank should be
held liable.27

PNB’s argument that there is no loss to compensate since no demand for payment has been made by the payees must also
fail. Damage was caused to respondents-spouses when the PEMSLA checks they deposited were returned for the reason
"Account Closed." These PEMSLA checks were the corresponding payments to the Rodriguez checks. Since they could
not encash the PEMSLA checks, respondents-spouses were unable to collect payments for the amounts they had
advanced.

A bank that has been remiss in its duty must suffer the consequences of its negligence. Being issued to named payees,
PNB was duty-bound by law and by banking rules and procedure to require that the checks be properly indorsed before
accepting them for deposit and payment. In fine, PNB should be held liable for the amounts of the checks.

One Last Note

We note that the RTC failed to thresh out the merits of PNB’s cross-claim against its co-defendants PEMSLA and MPC.
The records are bereft of any pleading filed by these two defendants in answer to the complaint of respondents-spouses
and cross-claim of PNB. The Rules expressly provide that failure to file an answer is a ground for a declaration that
defendant is in default.28 Yet, the RTC failed to sanction the failure of both PEMSLA and MPC to file responsive
pleadings. Verily, the RTC dismissal of PNB’s cross-claim has no basis. Thus, this judgment shall be without prejudice to
whatever action the bank might take against its co-defendants in the trial court.

To PNB’s credit, it became involved in the controversial transaction not of its own volition but due to the actions of some
of its employees. Considering that moral damages must be understood to be in concept of grants, not punitive or
corrective in nature, We resolve to reduce the award of moral damages to P50,000.00.29

WHEREFORE, the appealed Amended Decision is AFFIRMED with the MODIFICATION that the award for moral
damages is reduced to P50,000.00, and that this is without prejudice to whatever civil, criminal, or administrative action
PNB might take against PEMSLA, MPC, and the employees involved.

SO ORDERED.

ILANO V ESPANOL
A cause of action has three elements: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and
(3) the act or omission of the defendant in violation of said legal right. In determining the presence of these elements,
inquiry is confined to the four corners of the complaint6 including its annexes, they being parts thereof.7 If these elements
are absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action.8

As reflected in the above-quoted allegations in petitioner’s complaint, petitioner is seeking twin reliefs, one for
revocation/cancellation of promissory notes and checks, and the other for damages.

Thus, petitioner alleged, among other things, that respondents, through "deceit," "abuse of confidence" "machination,"
"fraud," "falsification," "forgery," "defraudation," and "bad faith," and "with malice, malevolence and selfish intent,"
succeeded in inducing her to sign antedated promissory notes and some blank checks, and "[by taking] undue advantage"
of her signature on some other blank checks, succeeded in procuring them, even if there was no consideration for all of
these instruments on account of which she suffered "anxiety, tension, sleepless nights, wounded feelings and
embarrassment."

While some of the allegations may lack particulars, and are in the form of conclusions of law, the elements of a cause of
action are present. For even if some are not stated with particularity, petitioner alleged 1) her legal right not to be bound
by the instruments which were bereft of consideration and to which her consent was vitiated; 2) the correlative obligation
on the part of the defendants-respondents to respect said right; and 3) the act of the defendants-respondents in procuring
her signature on the instruments through "deceit," "abuse of confidence" "machination," "fraud," "falsification," "forgery,"
"defraudation," and "bad faith," and "with malice, malevolence and selfish intent."

Where the allegations of a complaint are vague, indefinite, or in the form of conclusions, its dismissal is not proper for the
defendant may ask for more particulars.9

With respect to the checks subject of the complaint, it is gathered that, except for Check No. 0084078,10 they were drawn
all against petitioner’s Metrobank Account No. 00703-955536-7.

Annex "D-8"11 of the complaint, a photocopy of Check No. 0085134, shows that it was dishonored on January 12, 2000
due to "ACCOUNT CLOSED." When petitioner then filed her complaint on March 28, 2000, all the checks subject hereof
which were drawn against the same closed account were already rendered valueless or non-negotiable, hence, petitioner
had, with respect to them, no cause of action.

With respect to above-said Check No. 0084078, however, which was drawn against another account of petitioner, albeit
the date of issue bears only the year − 1999, its validity and negotiable character at the time the complaint was filed on
March 28, 2000 was not affected. For Section 6 of the Negotiable Instruments Law provides:

Section 6. Omission; seal; particular money. – The validity and negotiable character of an instrument are not affected by
the fact that –

(a) It is not dated; or

(b) Does not specify the value given, or that any value had been given therefor; or

(c) Does not specify the place where it is drawn or the place where it is payable; or

(d) Bears a seal; or

(e) Designates a particular kind of current money in which payment is to be made.

x x x (Emphasis supplied)

However, even if the holder of Check No. 0084078 would have filled up the month and day of issue thereon to be
"December" and "31," respectively, it would have, as it did, become stale six (6) months or 180 days thereafter, following
current banking practice.12

It is, however, with respect to the questioned promissory notes that the present petition assumes merit. For, petitioner’s
allegations in the complaint relative thereto, even if lacking particularity, does not as priorly stated call for the dismissal of
the complaint.

WHEREFORE, the petition is PARTLY GRANTED.

The March 21, 2003 decision of the appellate court affirming the October 12, 2000 Order of the trial court, Branch 20 of
the RTC of Imus, Cavite, is AFFIRMED with MODIFICATION in light of the foregoing discussions.

The trial court is DIRECTED to REINSTATE Civil Case No. 2079-00 to its docket and take further proceedings thereon
only insofar as the complaint seeks the revocation/cancellation of the subject promissory notes and damages.

Let the records of the case be then REMANDED to the trial court.

SO ORDERED.

REPUBLIC PLANTER’S BANK V CA

We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature
for the following reasons:

The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments Law. 2
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are
liable as such.3 By signing the notes, the maker promises to pay to the order of the payee or any holder 4 according to the
tenor thereof.5 Based on the above provisions of law, there is no denying that private respondent Fermin Canlas is one of
the co-makers of the promissory notes. As such, he cannot escape liability arising therefrom.

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.6 An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay, when
signed by two or more persons, makes them solidarily liable. 7 The fact that the singular pronoun is used indicates that the
promise is individual as to each other; meaning that each of the co-signers is deemed to have made an independent
singular promise to pay the notes in full.

In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason for
ambiguity, by the presence of the phrase "joint and several" as describing the unconditional promise to pay to the order of
Republic Planters Bank. A joint and several note is one in which the makers bind themselves both jointly and individually
to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of
the suit. 8 A joint and several obligation in common law corresponds to a civil law solidary obligation; that is, one of
several debtors bound in such wise that each is liable for the entire amount, and not merely for his proportionate share. 9
By making a joint and several promise to pay to the order of Republic Planters Bank, private respondent Fermin Canlas
assumed the solidary liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with
Yamaguchi and Pinch Manufacturing Corporation as solidary debtors.

As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the makers in the
notes will affect the liability of the makers, We do not find it necessary to resolve and decide, because it is immaterial and
will not affect to the liability of private respondent Fermin Canlas as a joint and several debtor of the notes. With or
without the presence of said phrase, private respondent Fermin Canlas is primarily liable as a co-maker of each of the
notes and his liability is that of a solidary debtor.

Finally, the respondent Court made a grave error in holding that an amendment in a corporation's Articles of Incorporation
effecting a change of corporate name, in this case from Worldwide Garment manufacturing Inc to Pinch Manufacturing
Corporation extinguished the personality of the original corporation.

The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the original
corporation. It is the same corporation with a different name, and its character is in no respect changed.10

A change in the corporate name does not make a new corporation, and whether effected by special act or under a general
law, has no affect on the identity of the corporation, or on its property, rights, or liabilities. 11

The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had previously
contracted or incurred.12
As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or contracts
entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of
the old corporation and the change of name meant only the continuation of the old juridical entity, the corporation bearing
the same name is still bound by the acts of its agents if authorized by the Board. Under the Negotiable Instruments Law,
the liability of a person signing as an agent is specifically provided for as follows:

Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a person adds to his
signature words indicating that he signs for or on behalf of a principal , or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a
representative character, without disclosing his principal, does not exempt him from personal liability.

Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative
capacity or the name of the third party for whom he might have acted as agent, the agent is personally liable to take holder
of the instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or extrinsic
evidence is not admissible to avoid the agent's personal liability. 13

On the private respondent's contention that the promissory notes were delivered to him in blank for his signature, we rule
otherwise. A careful examination of the notes in question shows that they are the stereotype printed form of promissory
notes generally used by commercial banking institutions to be signed by their clients in obtaining loans. Such printed
notes are incomplete because there are blank spaces to be filled up on material particulars such as payee's name, amount
of the loan, rate of interest, date of issue and the maturity date. The terms and conditions of the loan are printed on the
note for the borrower-debtor 's perusal. An incomplete instrument which has been delivered to the borrower for his
signature is governed by Section 14 of the Negotiable Instruments Law which provides, in so far as relevant to this case,
thus:

Sec. 14. Blanks: when may be filled. — Where the instrument is wanting in any material particular, the person in
possesion 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 filled up strictly in accordance with the authority given and within a reasonable time...

Proof that the notes were signed in blank was only the self-serving testimony of private respondent Fermin Canlas, as
determined by the trial court, so that the trial court ''doubts the defendant (Canlas) signed in blank the promissory notes".
We chose to believe the bank's testimony that the notes were filled up before they were given to private respondent
Fermin Canlas and defendant Shozo Yamaguchi for their signatures as joint and several promissors. For signing the notes
above their typewritten names, they bound themselves as unconditional makers. We take judicial notice of the customary
procedure of commercial banks of requiring their clientele to sign promissory notes prepared by the banks in printed form
with blank spaces already filled up as per agreed terms of the loan, leaving the borrowers-debtors to do nothing but read
the terms and conditions therein printed and to sign as makers or co-makers. When the notes were given to private
respondent Fermin Canlas for his signature, the notes were complete in the sense that the spaces for the material particular
had been filled up by the bank as per agreement. The notes were not incomplete instruments; neither were they given to
private respondent Fermin Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not
applicable.

The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on the
promissory notes from 16% to 12% per annum does not squarely apply to the instant petition. In the abovecited case, the
rate of 12% was applied to forebearances of money, goods or credit and court judgemets thereon, only in the absence of
any stipulation between the parties.

In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum, which interest rate the
plaintiff may at any time without notice, raise within the limits allowed law. And so, as of February 16, 1984 , the plaintiff
had fixed the interest at 16% per annum.

This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116, are applicable only to
interests by way of compensation for the use or forebearance of money. Article 2209 of the Civil Code, on the other hand,
governs interests by way of damages.15 This fine distinction was not taken into consideration by the appellate court,
which instead made a general statement that the interest rate be at 12% per annum.

Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling prescribed by the Usury
Law, the appellate court erred in limiting the interest rates at 12% per annum. Central Bank Circular No. 905, Series of
1982 removed the Usury Law ceiling on interest rates. 16

In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on the matter, the
decision of the respondent: Court of Appeals absolving private respondent Fermin Canlas is REVERSED and SET
ASIDE. Judgement is hereby rendered declaring private respondent Fermin Canlas jointly and severally liable on all the
nine promissory notes with the following sums and at 16% interest per annum from the dates indicated, to wit:

Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January 29, 1981 until fully
paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with interest from November 27, 1980: under
the promissory note denominated as Exhibit C, the amount of P166,466.00 with interest from January 29, 1981; under the
promissory note denominated as Exhibit D, the amount of P367,000.00 with interest from January 29, 1981 until fully
paid; under the promissory note marked as Exhibit E, the amount of P86,130.31 with interest from January 29, 1981;
under the promissory note marked as Exhibit F, the sum of P140,000.00 with interest from November 27, 1980 until fully
paid; under the promissory note marked as Exhibit G, the amount of P12,703.70 with interest from November 27, 1980;
the promissory note marked as Exhibit H, the sum of P281,875.91 with interest from January 29, 1981; and the
promissory note marked as Exhibit I, the sum of P200,000.00 with interest on January 29, 1981.

The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and
Shozo Yamaguchi, for not having appealed from the decision of the trial court, shall be adjudged in accordance with the
judgment rendered by the Court a quo.

With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas is hereby held
jointly and solidarity liable with defendants for the amounts found, by the Court a quo. With costs against private
respondent.

SO ORDERED.
EVANGELISTA V MERCATOR
Summary judgment "is a procedural technique aimed at weeding out sham claims or defenses at an early stage of the
litigation." 19 The crucial question in a motion for summary judgment is whether the issues raised in the pleadings are
genuine or fictitious, as shown by affidavits, depositions or admissions accompanying the motion. A genuine issue means
"an issue of fact which calls for the presentation of evidence, as distinguished from an issue which is fictitious or
contrived so as not to constitute a genuine issue for trial." 20 To forestall summary judgment, it is essential for the non-
moving party to confirm the existence of genuine issues where he has substantial, plausible and fairly arguable defense,
i.e., issues of fact calling for the presentation of evidence upon which a reasonable finding of fact could return a verdict
for the non-moving party. The proper inquiry would therefore be whether the affirmative defenses offered by petitioners
constitute genuine issue of fact requiring a full-blown trial. 21

In the case at bar, there are no genuine issues raised by petitioners. Petitioners do not deny that they obtained a loan from
Mercator. They merely claim that they got the loan as officers of Embassy Farms without intending to personally bind
themselves or their property. However, a simple perusal of the promissory note and the continuing suretyship agreement
shows otherwise. These documentary evidence prove that petitioners are solidary obligors with Embassy Farms.
Courts can interpret a contract only if there is doubt in its letter. 25 But, an examination of the promissory note shows no
such ambiguity. Besides, assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law
states, viz:chanrob1es virtual 1aw library

SECTION 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:chanrob1es virtual 1aw library

x x x

(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.chanrob1es virtua1 1aw 1ibrary

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. 26 Petitioners cannot claim that they did not personally receive any consideration for the contract for well-
entrenched is the rule that the consideration necessary to support a surety obligation need not pass directly to the surety, a
consideration moving to the principal alone being sufficient. A surety is bound by the same consideration that makes the
contract effective between the principal parties thereto. 27 Having executed the suretyship agreement, there can be no
dispute on the personal liability of petitioners.

Lastly, the parol evidence rule does not apply in this case. 28 We held in Tarnate v. Court of Appeals, 29 that where the
parties admitted the existence of the loans and the mortgage deeds and the fact of default on the due repayments but raised
the contention that they were misled by respondent bank to believe that the loans were long-term accommodations, then
the parties could not be allowed to introduce evidence of conditions allegedly agreed upon by them other than those
stipulated in the loan documents because when they reduced their agreement in writing, it is presumed that they have
made the writing the only repository and memorial of truth, and whatever is not found in the writing must be understood
to have been waived and abandoned.
IN VIEW WHEREOF, the petition is dismissed. Treble costs against the petitioners.chanrob1es virtua1 1aw 1ibrary