Ravi Ysmael

G.R. No. 168274 August 20, 2008

Negotiable Instruments Law

FAR EAST BANK & TRUST COMPANY vs. GOLD PALACE JEWELLERY CO., as represented by Judy L. Yang, Julie Yang-Go and Kho Soon Huat
FACTS: Samuel Tagoe, purchased from Gold Palace Jewellery Co.'s several pieces of jewelry. In payment of the same, he offered Foreign Draft. Issued by the United Overseas Bank (UOB), addressed to the Land Bank of the Philippines, Manila (LBP), and payable to Gold Palace Jewellery Co.'s. Gold Palace deposited the draft in the company's account with Far East Bank. LBP informed Far East that the amount in foreign draft had been materially altered. The material alteration was discovered by UOB after LBP had informed it that its funds were being depleted following the encashment of the subject draft. Intending to debit the amount from Gold Palace account, Far East refunded the amount earlier paid by LBP. Far East was able to debit only a portion of the amount but this was done without a prior written notice to Gold Palace. Far East only notified by phone the representatives of Gold Palace. Far East demanded from Gold Palace the payment of the remaining amount. Because Gold Palace did not heed the demand, Far East instituted Civil case for sum of money and damages. ISSUE/S: Whether or not Gold Palace is liable to pay Far East. PETITIONERS ARGUMENT: Far East could charge Gold Palace on its secondary liability as an indorser. RULING: The Petition is denied. HELD: No. Gold Palace is protected under the NIL, its collecting agent, Far East, should not have debited the money paid by the drawee bank(LBP) from Gold Palace account. When Gold Palace deposited the check with Far East, the latter, under the terms of the deposit and the provisions of the NIL, became an agent of the former for the collection of the amount in the draft. Subsequent payment by the drawee bank(LBP) and the collection of the amount by the collecting bank(Far East) closed the transaction insofar as the drawee and the holder of the check or his agent are concerned, converted the check into a mere voucher, and, as already discussed, foreclosed the recovery by the drawee(LBP) of the amount paid. This closure of the transaction is a matter of course; otherwise, uncertainty in commercial transactions, delay and annoyance will arise if a bank at some future time will call on the payee for the return of the money paid to him on the check. As the transaction in this case had been closed and the principal-agent relationship between the payee (Gold Palace) and the collecting bank (Far East) had already ceased, the latter in returning the amount to the drawee bank (LBP) was already acting on its own and should now be responsible for its own actions. Neither can Far East be considered to have acted as the representative of the drawee bank(LBP) when it debited Gold Palace account, because, as already explained, the drawee bank(LBP) had no right to recover what it paid. Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for collection to shift the burden it brought upon itself. This is precisely because the said indorsement is only for purposes of collection which, under Section 36 of the NIL, is a restrictive indorsement. It did not in any way transfer the title of the instrument to Far East. Far East did not own the draft, it merely presented it for payment. Considering that the warranties of a general indorser as provided in Section 66 of the NIL are

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Negotiable Instruments Law

based upon a transfer of title and are available only to holders in due course, these warranties did not attach to the indorsement for deposit and collection made by Gold Palace to Far East. Without any legal right to do so, the collecting bank(Far East), therefore, could not debit Gold Palace account for the amount it refunded to the drawee bank.

G.R. No. 166810 June 26, 2008

Ravi Ysmael JUDE JOBY LOPEZ, vs. PEOPLE OF THE PHILIPPINES,.

Negotiable Instruments Law

FACTS: Jude Lopez issued a check to Efren Ables P20,000.00 knowing well that at the time of issue, he did not have sufficient fund and his account is already closed. Upon presentment of the check, the same was dishonored by the Bank. Despite repeated demands after receipt of notice of said dishonor made by Efren R. Ables, Lopez refused and still refuses to pay. The trial court convicted Lopez of the crime of estafa. ISSUE/S: Whether or not notice of dishonor is necessary in order to prove deceit. PETITIONER'S ARGUMENT: Lopez contends that Ables knew at the time of the issuance of the check that accused had no funds in the bank and therefore, the element of deceit was absent. RULING: The Petition is denied. HELD: No. Section 114(d) of the Negotiable Instruments Law provides: Sec. 114 When notice need not be given to drawer. Notice of dishonor is not required to be given to the drawer in either of the following cases: d. Where the drawer has no right to expect or require that the drawee or acceptor will honor the check. Since Lopez bank account was already closed even before the issuance of the subject check, he had no right to expect or require the drawee bank to honor his check. By virtue of the provision of law, Lopez is not entitled to be given a notice of dishonor.

G.R. No. 169334

September 8, 2006

Ravi Ysmael

Negotiable Instruments Law

LETICIA G. MIRANDA, vs.PHILIPPINE DEPOSIT INSURANCE CORPORATION, BANGKO SENTRAL NG PILIPINAS and PRIME SAVINGS BANK
FACTS: Leticia G. Miranda was a depositor of Prime Savings Bank. She withdrew substantial amounts from her account, but instead of cash she opted to be issued a crossed cashier's check. She was thus issued two cashier's checks in the amount of P2,500,000.00 and P3,002,000.00. Miranda deposited the two checks into her account in another bank on the same day,however, Bangko Sentral ng Pilipinas (BSP) suspended the clearing privileges of Prime Savings Bank. The two checks of petitioner were returned to her unpaid. The BSP placed Prime Savings Bank under the receivership of the Philippine Deposit Insurance Corporation (PDIC).Miranda filed a civil action for sum of money in the RTC to recover the funds from her unpaid checks against Prime Savings Bank, PDIC and the BSP. The court held in favor of Miranda. CA reversed the decision of the lower court. ISSUE/S: (1) Whether the two cashier's checks operate as an assignment of funds in the hands of the Miranda; (2) Whether the claim lodged by Miranda is a disputed claim under Section 30 of Republic Act (R.A.) No. 7653, otherwise known as the New Central Bank Act, and therefore, under the jurisdiction of the liquidation court; and (3) Whether the PDIC,BSP and Prime Savings Bank are solidarily liable to the Miranda. PETITIONERS ARGUMENT: Miranda contends that PDIC,BSP and Prime Savings Bank are liable for the payment of the two checks. RULING: Petition is denied but Leticia G. Miranda is entitled to a preference in the assets of Prime Savings Bank in its liquidation for the amounts of P3,002,000.00 and P2,500,000.00, in the proceedings before the liquidation court. HELD: (1) Miranda contends that she ceased to be a depositor upon withdrawal of her deposit and the issuance of the two cashier's checks to her. As a holder in due course of the cashier's checks as defined under Sections 52 and 191 of the Negotiable Instruments Law, she is an assignee of the funds of Prime Savings Bank as drawer thereof and entitled to its immediate payment. The two cashier's checks issued by Prime Savings Bank do not constitute an assignment of funds in the hands of Miranda as there were no funds to speak of in the first place. The bank was financially insolvent for some time, even before the issuance of the checks. As the Court of Appeals correctly ruled, the issuance of the cashier's checks to petitioner did not constitute an assignment of funds, of which there was practically none at the time these were issued, as the bank was in dire financial straits for some time. (2)Miranda further states that by the mere issuance of the cashier's check, the funds represented by the check are transferred from the credit of the maker to that of the payee or holder. Hence, Miranda alleges that she cannot be placed on the same footing with the ordinary creditors of the bank because Section 30 of R.A. No. 7653 is for equality among creditors. She avers that she is not a creditor thus is entitled to the immediate payment of her claim, pursuant to Section 189 of the Negotiable Instruments Law and existing jurisprudence. She argues that putting her on equal footing with ordinary creditors, would contravene the provisions of the Negotiable Instruments

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Negotiable Instruments Law

Law and would greatly diminish her rights as a holder in due course of said two cashier's checks. The claim lodged by Miranda qualifies as a disputed claim subject to the jurisdiction of the liquidation court. Regular courts do not have jurisdiction over actions filed by claimants against an insolvent bank, unless there is a clear showing that the action taken by the BSP, through the Monetary Board in the closure of financial institutions was in excess of jurisdiction, or with grave abuse of discretion. (3) Miranda also argues that respondents PDIC and BSP contrary to Sections 185 and 189 of the Negotiable Instruments Law have caused damage to the petitioner and should be held solidarily liable by indemnifying the petitioner for the value of the two cashier's checks. It is only Prime Savings Bank that is liable to pay for the amount of the two cashier's checks. Solidary liability cannot attach to the BSP, in its capacity as government regulator of banks, and the PDIC as statutory receiver under R.A. No. 7653, because they are the principal government agencies mandated by law to determine the financial viability of banks and quasi-banks, and facilitate receivership and liquidation of closed financial institutions, upon a factual determination of the latter's insolvency.

Ravi Ysmael

Negotiable Instruments Law

G.R. No. 136202 January 25, 2007 BANK OF THE PHILIPPINE ISLANDS vs. COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. TEMPLONUEVO Facts: A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages against Bank of the Philippine Islands (BPI). The complaint was later amended by substituting the name of Annabelle A. Salazar as the real party in interest in place of A.A. Salazar Construction and Engineering Services. Salazar prayed for the recovery of the amount of P267,707.70 debited by BPI from her account. BPI alleged that Julio R. Templonuevo, demanded from the former payment of the amount of P267,692.50 representing the aggregate value of three (3) checks, which were allegedly payable to him, but which were deposited with the BPI to Salazars account without his knowledge and corresponding endorsement. Accepting that Templonuevos claim was a valid one, BPI froze Account No. 0201-058848 of A.A. Salazar and Construction and Engineering Services, instead of Account No. 0203-118767 where the checks were deposited, since this account was already closed by Salazar or had an insufficient balance. Salazar was advised to settle the matter with Templonuevo but they did not arrive at any settlement. As it appeared that Salazar was not entitled to the funds represented by the checks

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Negotiable Instruments Law

which were deposited and accepted for deposit, BPI decided to debit the amount of P267,707.70 from her Account No. 0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a cashiers check. The lower court held that BPI is liable to Salazar. the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent Salazar was entitled to the proceeds of the three (3) checks notwithstanding the lack of endorsement thereon by the payee. The CA concluded that Salazar and Templonuevo had previously agreed that the checks payable to JRT Construction and Trading actually belonged to Salazar and would be deposited to her account, with BPI acquiescing to the arrangement. Issues: (1)Whether or not a valid transfer of ownership of the negotiable instrument in question has taken place in favor of Salazar. (2)Whether or not the deductions made by BPI from Salazars account is valid. Ruling: The Court ordered BPI to return the amount Salazar. Held: (1)No.Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a negotiable instrument for value without indorsing it, thus: Transfer without indorsement; effect of- Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made. It bears stressing that the above transaction is an equitable assignment and the transferee acquires the instrument subject to defenses and equities available among prior parties. Thus, if the transferor had legal title, the transferee acquires such title and, in addition, the right to have the indorsement of the transferor and also the right, as holder of the legal title, to maintain legal action against the maker or acceptor or other party liable to the transferor. The underlying premise of this provision, however, is that a valid transfer of ownership of the negotiable instrument in question has taken place. Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment may be inferred. The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of Salazar because the term "given" does not pertain merely to a transfer of physical possession of the instrument. The phrase "given or indorsed" in the context of a negotiable instrument refers to the manner in which

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Negotiable Instruments Law

such instrument may be negotiated. Negotiable instruments are negotiated by "transfer to one person or another in such a 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 completed by delivery." The present case involves checks payable to order. Not being a payee or indorsee of the checks, Salazar could not be a holder thereof. It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder. Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same. (2) No. It is conceded that BPI had the right of set-off over the amount it paid to Templonuevo against the deposit of Salazar, the issue of whether it acted judiciously is an entirely different matter. As businesses affected with public interest, and because of the nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In this regard, BPI was clearly remiss in its duty to Salazar as its depositor. The act of the BPI in freezing and later debiting the amount of P267,692.50 from the account of A.A. Salazar Construction and Engineering Services caused Salazar great damage and prejudice particularly when she had already issued checks drawn against the said account. As can be expected, the said checks bounced. These checks, it must be emphasized, were subsequently dishonored, causing Salazar undue embarrassment and inflicting damage to her standing in the business community. Under the circumstances, she was clearly not given the opportunity to protect her interest when BPI unilaterally withdrew the above amount from her account without informing her that it had already done so.