DIGEST COMPILATION 1: Bills, Notes and Commercial Papers | Day 3 | January 27, 2016

Table of Contents
TRADERS ROYAL BANK V. CA (1997)........................................................1
PHILIPPINE NATIONAL BANK V. ERLANDO AND NORMA RODRIGUEZ (2008)2
RODRIGO RIVERA, PETITIONER, V. SPOUSES SALVADOR CHUA AND S. VIOLETA CHUA, RESPONDENTS. 4
HSBC V COMMISSIONER OF INTERNAL REVENUE......................................6
PACHECO V. CA..........................................................................................7
SPS. EVANGELISTA VS MERCATOR FINANCE CORP., LYDIA SALAZAR, LAMECS REALTY AND DEVELOPMENT CORP. AND THE REGISTER OF DEEDS OF
BULACAN....................................................................................................9
BOARD OF INLAND REVENUE V. HADDOCK..................................10

Traders Royal Bank v. CA (1997)
GR No. 93397 / 3 Mar 1997 / J. Torres, Jr.
FACTS
 Filriters Guaranty Assurance, an insurance company, executed a
"Detached Assignment" where it sold its rights and title to 7x500k or
P3.5 million worth of Central Bank Certificate of Indebtedness (CBCIs)
or bonds of the central bank (CB), to Philippine Finance Underwriters
Finance Corp (Philfinance)
 Petitioner Traders Royal Bank (TRB) bought the CBCIs from
Philfinance, with the latter having a right to repurchase. Philfinance
defaulted and did not repurchase, thus executing another "Detached
Assignment" in favor of TRB to have its title completed and registered
in the books of the central bank.
 TRB went to the central bank, seeking to register the CBCIs in its
name. The Central Bank did not act upon their request, thus TRB filed
a Rule 65 petition for mandamus with the RTC with prayer for
registration of the CBCIs in its name.
 The Central Bank filed an answer with interpleader to call Filriters,
the registered owner, to the litigation.
 Filriters, as defense, said that the CBCIs were transferred to
Philfinance without consideration. A few senior officials (the SVP-
Treasury, SVP-Comptroller and VP-Treasury) of Filriters executed the
transfer without knowledge of the BOD of the corporation and lacking
any board resolution.
 RTC Decision: In favor of Filriters. The transfer was found to be
ineffective.
 CA: Upheld RTC decision.
ISSUE / HELD
 W/N Traders Royal Bank had a valid title and could compel
registration of the CBCIs in its name. NO. CA decision upheld.
o W/N the transfer from Filriters to Philfinance was valid. NO
o W/N the CBCIs were negotiable instruments. NO
o W/N the corporate veil should be pierced and Filriters and
Philfinance should be regarded as the same entity. NO
RATIO
Relevant part, W/N the CBCI was a negotiable instrument
1. In the CA petitioner argued that the CBCI was a negotiable instrument,
and having acquired the same from Philfinance as a holder in due
course, its possession of the same is thus free from any defect of title
from prior parties and from any defense available to prior parties
among themselves, and it may thus enforce payment of the
instrument for the full amount thereof against all parties liable
thereon.

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DIGEST COMPILATION 1: Bills, Notes and Commercial Papers | Day 3 | January 27, 2016
2. CA held - which SC agreed - the instrument CBCI clearly stated it was
payable to Filrtiers and the certificate lacked the words of
negotiability which serve as an expression of consent that the
instrument may be transferred by negotiation.
3. The wording of the CBCI says:
The Central Bank of the Philippines (the Bank) for value
received, hereby promises to pay bearer, of if this Certificate of
indebtedness be registered, to FILRITERS GUARANTY
ASSURANCE CORPORATION, the registered owner hereof, the
principal sum of FIVE HUNDRED THOUSAND PESOS.
4. The CBCI is payable to no one else but Filrters, discounting the
argument that it is a holder in due course.
5. Freedom of negotiability is the touchstone relating to the protection
of holders in due course. This freedom in negotiability is totally absent
in a certificate indebtedness as it merely to pay a sum of money to a
specified person or entity for a period of time.
6. Caltex (Philippines) Inc. v. CA - The accepted rule is that the
negotiability or non-negotiability of an instrument is determined from
the writing, that is, from the face of the instrument itself. In the
construction of a bill or note, the intention of the parties is to control,
if it can be legally ascertained.
7. Thus the transfer is merely an assignment, and not covered by the
negotiable instruments law.
W/N the transfer from Filrtiers to Philfinance was valid.
8. There was really no consideration involved, although the deed of
assignment stated that the transfer was for "value received." What
happened was that Philfinance merely borrowed the CBCI from
Filriters, a sister corporation.
9. The transfer did not conform with CB Circular no. 769 series of 1980,
Sec. 3 thereof providing that any assignment of registered certificates
shall not be valid unless made by the registered owner thereof in
person or by his representative duly authorized in writing.
10. Alfredo Banaria, Filrtiers SVP-Treasury, did not have the necessary
written authorization from Filriters' BOD to act for the corporation. For
lack of such authority, the assignment did not bind Filtriters.
W/N the veil of corporate fiction should be pierced.
11. Piercing the veil is an equitable remedy and may be awarded only in
cases when the corporate fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime or where a corporation is
a mere alter ego or business conduit of a person.
12. Other than the allegation that Filriters is 90% owned by Philfinance,
and the identity of one shall be maintained as to the other, there is
nothing else which could lead the court under circumstance to
disregard their corporate personalities. The mere ownership by a
single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities.
13. There is sufficient showing that petitioner was not defrauded when it
acquired the subject certificate of indebtedness from Philfinance. On
its face, the CBCI stated that it is registered in the name of Filriters.
This should have put petitioner on notice and prompted it to inquire
from Filriters as to Philfinance's title over the same or its authority to
assign the certificate.
14. Also, the transfer did not conform to CB circular 769 series of 1980
and its requirements. Being a commercial bank, TRB cannot feign
ignorance of said circular.
15. The CBCI was acquired by Filriters to form part of its legal and capital
reserves required by the insurance code. It cannot be taken from said
funds without violating the law. Thus, the unauthorized use or
distribution of the same by a corporate officer of Filriters cannot bind
the said corporation, not without the approval of its Board of
Directors, and the maintenance of the required reserve fund.
Philippine National Bank v. Erlando and Norma Rodriguez
(2008)
Characters
Philnbank Employee Savings and Loan Association (PEMSLA) – loan
association of PNB employees
Sps. Rodriguez – informal lenders engaged in check discounting
PNB Cebu Branch – The bank where both PEMSLA and Sps. Rodriguez
maintained savings and checking accounts.
Lending Scheme (legal)
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(1) PEMSLA  grants loans to its members by issuing checks to order
to the names of the members
(2) Some of these checks were post-dated.
(3) IF PEMSLA had no money  checks were given to Sps. Rodriguez
to rediscount
(4) Sps. Rodriguez kept PEMSLA’s checks and issued new checks from
their own account to the members.
Lending Scheme (illegal)
PEMSLA had a policy of not issuing loans to members with outstanding
debt. To avoid this rule, some officers employed the following scheme:
(1) Loans were forged in the names of members who had no knowledge
of them.
(2) PEMSLA issued checks payable to unknowing members
(3) Checks were discounted with Sps. Rodriguez who issued their own
new checks,
(4) HOWEVER: PEMSLA officers would deposit the Spouses’ checks
in the savings account of PEMSLA without the indorsement of the
member named in the check.
(5) This was made possible by collusion with PNB tellers.
What happened:
(1) 69 checks were issued to 47 members under the illegal scheme
amounting to P2.345M
(2) Sps. Rodriguez received the PEMSLA checks (drawee is PNB
because PNB account)
(3) Sps. Rodriguez issued their own checks to the members (drawee still
PNB because also PNB account)
(4) PNB discovered the fraud and closed the PEMSLA checking
account while maintaining open the PEMSLA savings account
where the new non-indorsed Rodriguez checks were deposited.
(5) End result: Sps. Rodriguez lost money because the PEMSLA
checks were dishonored, while their own improperly indorsed checks
were still deposited in PEMSLA’s savings account.
ACTION: for Damages arising out of breach of contract by PNB. PNB
filed cross claim against PEMSLA.
(1) Grounds of Spouses.: Acceptance of the drawee bank of a check
that was PAID TO ORDER to a SPECIFIC MEMBER without the
endorsement of that member was a breach of its depositor contract
with the Spouses.
(2) Defense of PNB: Spouses never intended the named payees to
receive the proceeds of the checks and as such were fictitious payees
under NIL Section 9(c). The result is that checks are BEARER
INSTRUMENTS.
RTC: Ruled in favor of Spouses and awarded damages.
CA: Ruled for PNB, then reversed itself and ruled for Spouses.
Issues before the SC: WON the checks deposited to PNB accounts were
bearer instruments. IF they were, then there would be no cause of action
against PNB because bearer instruments are negotiated by mere delivery and
the drawee is not liable for any loss or injury arising out of their negotiation.
SC: They were Payable to Order. PNB liable for gross negligence.
Nature of Order / Bearer Instruments:
Distinction between bearer and order instruments lies in their manner of
negotiation. Under section 30 of NIL, an order instruments requires an
indorsement from the payee or holder before it may be validly negotiated. A
bearer instrument does not require an indorsement. It is negotiated by mere
delivery.
EXCEPTION: found in Section 9(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;
RE Fictitious Payee:
“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 which may 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.”
Fictitious ALSO includes existing persons IF there was no intention by the
maker that the payee named should in fact receive the proceeds of the
instrument.
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Court looked at two US cases:
(1) Mueller & Martin v. Liberty Insurance Bank: Martin defrauded his
own company by forging checks payable to one German Savings
Fund Company Building Association. He then placed a stamped
indorsement of the Association on the back of the check and signed it
himself. US SC held that the bank was not liable for damages since
Mueller did not intend that the check be payable to the
Association and in fact forged the indorsement so he could get the
funds. Liberty Insurance Bank was authorized to make payments to
the bearer regardless of the forged indorsements.
(2) Getty Petroleum v. American Express Travel: There is a
“Commercial Bad Faith Exception” to the fictitious payee rule
where the transferee/drawee acted in bad faith, then the latter
becomes participant in the fraudulent scheme. Getty case also
created the rule that fictitious payee protection extends even to non-
bank drawees of the checks.
IN THIS CASE
(1) Payees of Spouses’ checks were actual existing persons.
(2) The fact that the payees did not know loans were being contracted
and checks issued to them was not tantamount to a lack of intention
of the Spouses that the payees would not receive the proceeds.
THERE ARE PRESUMED TO BE ORDER INSTRUMENTS on
their face and PNB did not rebut the presumption.
(3) PNB was grossly negligent since it has a duty to verify the
genuineness and signature of its drawer clients and to STRICTLY
COMPLY with the instruction of the drawer with respect to transfers
on the latter’s account with the bank.
(4) If not directly liable, then liable through its negligence in the
selection and supervision of its employees who allowed the
fraudulent scheme to take place.
RODRIGO RIVERA, Petitioner, v. SPOUSES SALVADOR
CHUA AND S. VIOLETA CHUA, Respondents.
(J:Perez)
1. Collection of a sum of money due a promissory note. promissory
note as duly signed by the obligor, Rodrigo Rivera
2. Rivera and Salvador are kumpadres, the former is the godfather of
the Spouses Chua’s son.
3. On 24 February 1995, Rivera obtained a loan PHP 120k from the
Spouses Chua through a PN
4. In October 1998, as partial payment a check was drawn against
Rivera’s account with the Philippine Commercial International Bank
P 25k.
5. On 21 December 1998, the Spouses Chua received another check
issued by Rivera duly signed and dated, but blank as to payee and
amount.
6. The two checks were dishonored for the reason “account closed.”
7. Rivera countered that: (1) he never executed the subject Promissory
Note; (2) the loans were always covered by a security; (3) at the time
of the filing of the complaint, he still had an existing indebtedness to
the Spouses Chua, secured by a real estate mortgage, but not yet in
default; (4) PCIB Check No. 132224 signed by him which he
delivered to the Spouses Chua on 21 December 1998, should have
been issued in the amount of only P1,300.00, representing the
amount he received from the Spouses Chua’s saleslady; (5) contrary
to the supposed agreement, the Spouses Chua presented the check for
payment in the amount of P133,454.00; and (6) there was no demand
for payment of the amount of P120,000.00 prior to the encashment of
PCIB Check No. 0132224. hanRoblesvirtualLwlibrary
8. Rivera claimed forgery of the subject Promissory Note and denied
his indebtedness thereunder.
9. Witness Magbojos NBI document examiner examined the purported
signature of Rivera and found that that the signatures were written by
one and the same person.
10. MTC and RTC decided for Chua
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11. Both trial courts found the Promissory Note as authentic and validly
bore the signature of Rivera.
WON the document was forged.
NO.
Rivera failed to adduce clear and convincing evidence that the signature on
the promissory note is a forgery. The fact of forgery cannot be presumed but
must be proved by clear, positive and convincing evidence. Mere variance of
signatures cannot be considered as conclusive proof that the same was
forged.
WON the PN was a negotiable instrument
NO
The Promissory Note in this case is made out to specific persons, the Spouses
Chua, and not to order or to bearer, or to the order of the Spouses Chua as
payees
The promissory note is not a negotiable instrument and the provisions of the
NIL do not apply to this case. Section 1 of the NIL requires the concurrence
of the following elements to be a negotiable instrument:
(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.
On the other hand, Section 184 of the NIL defines what negotiable
promissory note is:
SECTION 184. Promissory Note, Defined. – A negotiable promissory note
within the meaning of this Act is an unconditional promise in writing made
by one person to another, signed by the maker, engaging to pay on demand,
or at a fixed or determinable future time, a sum certain in money to order or
to bearer. Where a note is drawn to the maker’s own order, it is not complete
until indorsed by him.
WON Rivera is liable, the PN not being a negotiable instrument?
YES
It bears emphasizing that the undertaking based on the note clearly states the
date of payment to be 31 December 1995. Given this circumstance, demand
by the creditor is no longer necessary in order that delay may exist since the
contract itself already expressly so declares. The mere failure of Spouses
Chua to immediately demand or collect payment of the value of the note does
not exonerate Riverafrom his liability therefrom.
WON the agreement to pay 5% monthly upon default may be enforced?
No.
The appellate court found the 5% a month or 60% per annum interest rate, on
top of the legal interest and attorney’s fees, steep, tantamount to it being
illegal, iniquitous and unconscionable.
WON the agreement to pay 5% monthly upon default is a penal clause?
No
The penal clause is generally undertaken to insure performance and works as
either, or both, punishment and reparation. It is an exception to the general
rules on recovery of losses and damages. As an exception to the general rule,
a penal clause must be specifically set forth in the
obligation.nRoblesvirtualLawlibrary
However, the stipulation in the Promissory Note is designated as payment of
interest, not as a penal clause, and is simply an indemnity for damages
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incurred by the Spouses Chua because Rivera defaulted in the payment of the
amount of P120,000.00.
As for the legal interest accruing from 11 June 1999, when judicial demand
was made, to the date when this Decision becomes final and executory, such
is likewise divided into two periods: (1) 12%per annum from 11 June 1999,
the date of judicial demand to 30 June 2013; and (2) 6% per annumfrom 1
July 2013 to date when this Decision becomes final and executor.We base
this imposition of interest on interest due earning legal interest on Article
2212 of the Civil Code which provides that “interest due shall earn legal
interest from the time it is judicially demanded, although the obligation may
be silent on this point.”
HSBC V Commissioner of Internal Revenue
Case: HSBC vs. CIR GR No. 166018
Date: June 4, 2014 Ponente:Leonardo-De
Castro, J.
TOPIC IN SYLLABUS: Requisites of Negotiability
SUMMARY: HSBC, with BIR Ruling 132-99 as its basis, sought to get a
refund of the DST it paid for the electronic messages of its investor-clients
instructing the bank to debit their accounts and to purchase stocks and
securities. The CTA ruled in its favor but the CA reversed the Decision.
The SC agreed with the CTA and held that the instructions given through
electronic messages that are subjected to DST in these cases are not
negotiable instruments as they do not comply with the requisites of
negotiability under Section 1 of the Negotiable Instruments Law.
HOW THE CASE REACHED THE SC: Petition for review on certiorari
of CA Decision
FACTS:
 In purchasing shares of stock and other investment in securities,
HSBC's investor-clients would send SWIFT (Society for Worldwide
Interbank Financial Telecommunication) electronic messages from
abroad instructing the bank to debit their accounts and to pay the
purchase price upon receipt of the securities.
 Pursuant to the electronic messages of its investor-clients, HSBC
purchased and paid Documentary Stamp Tax (DST) from September
to December 1997 and also from January to December 1998
amounting to P19,572,992.10 and P32,904,437.30, respectively.
 On August 23, 1999, the BIR issued BIR Ruling No. 132-99 to the
effect that instructions or advises from abroad on the management of
funds located in the Philippines which do not involve transfer of
funds from abroad are not subject to DST, as these are not the
transaction contemplated in Sec. 181 of the NIRC.1
 With the BIR Ruling as basis, HSBC filed 2 administrative claims
for the refund of erroneously paid DST. As the BIR did not act upon
the claims, they were brought by HSBC to the CTA, which ruled that
the bank was entitled to a tax credit or refund.
o The act of debiting the account is not subject to the DST
under Section 181. Neither is the transaction subject to the
DST under Section 180.2 These electronic message
instructions cannot be considered negotiable instruments as
they lack the feature of negotiability, which, is the ability to
be transferred.
 The CA however overturned the CTA, ruling that:
o The issue of whether such electronic messages may be
equated as a written document and thus be subject to tax is
beside the point. As We have already stressed, Section 181 of
the law cited earlier imposes the [DST] not on the bill of
exchange or order for payment of money but on the
acceptance or payment of the said bill or order.
o Here, [HSBC]’s acceptance of the orders for the payment of
money was veritably ‘done in writing in a separate
instrument’ each time it debited the local or foreign
1 SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – Upon any
acceptance or payment of any bill of exchange or order for the payment of money purporting to
be drawn in a foreign country but payable in the Philippines, there shall be collected a
documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos (P200), or
fractional part thereof, of the face value of any such bill of exchange, or order, or Philippine
equivalent of such value, if expressed in foreign currency.
2 SEC 180. Stamp Tax on All Bills of Exchange or Drafts. – On all bills of exchange (between
points in the Philippines) or drafts, there shall be collected a documentary stamp tax of Thirty
centavos (P0.30) on each Two hundred pesos (P200.00) or fractional part thereof, of the face
value of any such bill or draft.
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currency accounts of its client-investors pursuant to the
latter’s instructions and advises sent by electronic messages
to [HSBC]. The [DST] therefore must be paid upon the
execution of the specified instruments or facilities covered
by the tax – in this case, the acceptance by [HSBC] of the
order for payment of money sent by the client-investors
through electronic messages.
 Hence these petitions.
ISSUE: WON the electronic messages were bills of exchange (such that their
acceptance would subject the transaction to DST)
HELD: NO
The Court favorably adopts the finding of the CTA that the electronic
messages “cannot be considered negotiable instruments” and that the said
electronic messages are “mere memoranda” of the transaction consisting of
the “actual debiting of the [investor-client-]payor’s local or foreign currency
account in the Philippines” and “entered as such in the books of account of
the local bank,” HSBC.
More fundamentally, the instructions given through electronic messages that
are subjected to DST in these cases are not negotiable instruments as they do
not comply with the requisites of negotiability under Section 1 of the
Negotiable Instruments Law.3
The electronic messages are not signed by the investor-clients as supposed
drawers of a bill of exchange; they do not contain an unconditional order to
pay a sum certain in money as the payment is supposed to come from a
specific fund or account of the investor-clients; and, they are not payable to
order or bearer but to a specifically designated third party. Thus, the
3 SEC 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.
electronic messages are not bills of exchange. As there was no bill of
exchange or order for the payment drawn abroad and made payable here in
the Philippines, there could have been no acceptance or payment that will
trigger the imposition of the DST under Section 181 of the Tax Code.
Indeed, there had been no acceptance of a bill of exchange or order for the
payment of money on the part of HSBC. To reiterate, there was no bill of
exchange or order for the payment drawn abroad and made payable here in
the Philippines. Thus, there was no acceptance as the electronic messages
did not constitute the written and signed manifestation of HSBC to a
drawer’s order to pay money. As HSBC could not have been an acceptor,
then it could not have made any payment of a bill of exchange or order for
the payment of money drawn abroad but payable here in the Philippines. In
other words, HSBC could not have been held liable for DST under Section
230 of the 1977 Tax Code, as amended, and Section 181 of the 1997 Tax
Code as it is not “a person making, signing, issuing, accepting, or,
transferring” the taxable instruments under the said provision. Thus, HSBC
erroneously paid DST on the said electronic messages for which it is entitled
to a tax refund.
Pacheco v. CA
Topic: Requisites of Negotiability
ERNESTO T. PACHECO and VIRGINIA O. PACHECO, petitioners, vs.
HON. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES,
respondents.
G.R. No. 126670 | December 2, 1999 | 1st Div. | Ynares-Santiago, J.:
FACTS:
Due to repeated delays in the payment of their receivables for the
construction projects from DPWH, sps. Pacheco obtained a loan of P10K
from Mrs. Vicencio. She required them to issue an undated check as evidence
of the loan which allegedly will NOT be presented to the bank.
Despite being informed that their bank account no longer had any funds,
Mrs. Vicencio insisted that they issue the check, which was only a formality.
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Virginia issued an undated RCBC check for 10K but she only received 9K as
the 10% interest was already deducted. Mrs. Vicencio also required Ernesto
to sign the check.
Virginia obtained another loan of 50K but received only 35K as the previous
loan of 10K and 5k interest are deducted. Virginia asked for the return of the
first check but the latter told her that they can no longer locate the folder
containing the check.
For the new loan, Mrs. Vicencio also required Virginia to issue 3 more
checks: two 20K and one 10K to serve as guarantee for the loan since there
was no promissory note required of them. Virginia obtained two more loans,
one 10K and one 15K (also with the corresponding checks).
All of their loans are paid except for the remaining balance of 15K.
Mrs. Vicencio went to Pacheco’s residence to persuade Virginia to place the
date August 15, 1992 on the checks, although said checks were respectively
given undated to her on May 17, 1989 and July 21, 1989. Despite being
informed by Virginia that their account with RCBC had been closed as early
as August 17, 1989, Mrs. Vicencio insisted that she place a date so that it will
become evidence of their indebtedness. The former agreed for fear that she
might not be able to obtain future loans from Mrs. Vicencio.
Pachecos were surprised to receive on August 29, 1992 a demand letter from
Mrs. Vicencios spouse informing them that the checks were dishonored due
to Account Closed. Consequently, two informations for estafa, defined in
Article 315(2)(d)4 of the Revised Penal Code, were filed against them.
Both RTC and the CA found them guilty. Hence, this appeal.
ISSUES; HELD:
[Main issue] WON they are liable for estafa?
NO. The first and third elements5 of estafa are not present in this case. A
check has the character of negotiability and at the same time it constitutes an
evidence of indebtedness. By mutual agreement of the parties, the
negotiable character of a check may be waived and the instrument may
be treated simply as proof of an obligation. There cannot be deceit on the
part of the obligor, petitioners herein, because they agreed with the obligee at
the time of the issuance and postdating of the checks that the same shall not
4 ART. 315. Swindling (estafa). Any person who shall defraud another
by any of the means mentioned hereinbelow shall be punished by:
xxxxxxxxx
2. By means of any of the following false pretenses or fraudulent acts
executed prior to or simultaneously with the commission of the fraud:
xxxxxxxxx
(d) By postdating a check, or issuing a check in payment of an
obligation when the offender had no funds in the bank, or his funds
deposited therein were not sufficient to cover the amount of the
check. The failure of the drawer of the check to deposit the amount
necessary to cover his check within three (3) days from receipt of
notice from the bank and/or the payee or holder that said check has
been dishonored for lack or insufficiency of funds shall be prima
facie evidence of deceit constituting false pretense or fraudulent act.
5 The essential elements in order to sustain a conviction under the
above paragraph are:
1. that the offender postdated or issued a check in payment of an
obligation contracted at the time the check was issued;
2. that such postdating or issuing a check was done when the offender
had no funds in the bank, or his funds deposited therein were not
sufficient to cover the amount of the check;
3. deceit or damage to the payee thereof.
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DIGEST COMPILATION 1: Bills, Notes and Commercial Papers | Day 3 | January 27, 2016
be encashed or presented to the banks. As per assurance of the lender, the
checks are nothing but evidence of the loan or security thereof in lieu of and
for the same purpose as a promissory note. By their own covenant, therefore,
the checks became mere evidence of indebtedness. It has been ruled that a
drawer who issues a check as security or evidence of investment is not liable
for estafa. Under these circumstances, Mrs. Vicencio cannot claim that she
was deceived or defrauded by petitioners in obtaining the loan. In the
absence of the essential element of deceit, no estafa was committed by
petitioners.
WON placing the date makes them liable?
NO. Mr. Vicencio need not even ask the petitioners to place a date on the
check, because as holder of the check, he could have inserted the date
pursuant to Section 13 of the Negotiable Instruments Law (NIL). Moreover,
as stated in Section 14 thereof, complainant, as the person in possession of
the check, has prima facie authority to complete it by filling up the blanks
therein. Besides, pursuant to Section 12 of the same law, a negotiable
instrument is not rendered invalid by reason only that it is antedated or
postdated. Thus, the allegation of Mrs. Vicencio that the date to be placed by
Virginia was necessary so as to make the check evidence of indebtedness is
nothing but a ploy. Petitioners openly disclosed and never hid the fact that
they no longer have funds in the bank as their bank account was already
closed. Knowledge by the complainant that the drawer does not have
sufficient funds in the bank at the time it was issued to him does not give rise
to a case for estafa through bouncing checks.
WON the checks are already stale?
YES. A check must be presented within a reasonable time from issue. By
current banking practice, a check becomes stale after more than six (6)
months. In fact a check long overdue for more than two and one-half years is
considered stale. In this case, the checks were issued more than three years
prior to their presentment.
WON there is civil liability?
YES. An accused acquitted of a criminal charge may nevertheless be held
civilly liable in the same case where the facts established by the evidence so
warrant. Based on the records, they still have an outstanding obligation of
15K in favor of Mrs. Vicencio. There was mention that the loan shall earn
interests. However, an agreement as to payment of interest must be in
writing, otherwise it cannot be valid, although there was actual payment of
interests by virtue of the advance deductions from the loan. Once the
judgment becomes final and executory, the amount due is deemed equivalent
to a forbearance of credit during the interim period from the finality of
judgment until full payment, in which case it shall earn legal interest at the
rate of twelve per cent (12%) per annum pursuant to Central Bank (CB)
Circular No. 416.
DISPOSITIVE:
The assailed Decision is REVERSED and SET ASIDE. Petitioners are
ACQUITTED of the charge of estafa but they are ORDERED to pay Mrs.
Vicencio the amount of P15,000.00 without interest. However, from the time
this judgment becomes final and executory, the amount due shall earn legal
interest of twelve percent (12%) per annum until full payment.
SPS. EVANGELISTA vs MERCATOR FINANCE CORP., Lydia
Salazar, Lamecs Realty and Development Corp. and the Register
of Deeds of Bulacan
Facts
Spouses Eduardo and Epifania Evangelista were registered owners of 5
parcels of land contained in a Real Estate Mortgage executed by them in
favor of respondent Mercator Finance Corporation, in their capacity as
officers of the said corporation. The spouses claim that the loan proceeds in
the amount of P844,625.78 (secured by the REM) all went to Embassy
Farms, and is thus without consideration as to them. There being no principal
obligation on which the mortgage rests, the REM is void, thus making the
foreclosure proceedings (from which Mercator obtained its title to the lands)
void as well. Petitioners also allege that there is ambiguity in the wording of
the promissory note, which should be resolved against Mercator since it was
the one who provided the form for the said note. Lastly, they claim that the
note does not convey their true intent in executing the document.
Respondent Mercator Finance allege that the spouses are co-makers of the
promissory note, and are thus jointly and severally liable with Embassy
Farms. Salazar and Lamecs assert that they are innocent purchasers of the
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DIGEST COMPILATION 1: Bills, Notes and Commercial Papers | Day 3 | January 27, 2016
lands from Mercator Finance, relying in good faith on the latter's title. They
likewise impute estoppel and laches on the spouses as they only brought the
suit after 10 years from the foreclosure of the property.
The promissory note states that:
"For value received, I/We jointly and severally promise to pay to the order of
MERCATOR FINANCE CORPORATION at its office, the principal sum of
EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED
TWENTY-FIVE PESOS & 78/100 (P 844,625.78), Philippine currency, x x
x, in installments as follows:
September 16, 1982 - P154,267.87
October 16, 1982 - P154,267.87
November 16, 1982 - P154,267.87
December 16, 1982 - P154,267.87
January 16, 1983 - P154,267.87
February 16, 1983 - P154,267.87
The note was signed at the bottom by petitioners Eduardo B. Evangelista
and Epifania C. Evangelista, and Embassy Farms, Inc. with the signature of
Eduardo B. Evangelista below it. A continuing suretyship agreement was
subsequently executed by the petitioners to further secure the loan, which
stated that: "For valuable and/or other consideration, EDUARDO B.
EVANGELISTA and EPIFANIA C. EVANGELISTA (hereinafter called
Surety), jointly and severally unconditionally guarantees (sic) to
MERCATOR FINANCE COPORATION (hereinafter called Creditor), the
full, faithful and prompt payment and discharge of any and all indebtedness
of EMBASSY FARMS, INC. (hereinafter called Principal) to the Creditor...."
Issues
1) w/n petitioners are solidarily liable for the loan
Held
YES, spouses Evangelista are liable for payment of the loan just like
Embassy Farms. The REM and foreclosure proceedings are valid.
Ratio
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. The allegation of petitioners that there is ambiguity in the wording of
the promissory note cannot be given weight. Courts can interpret a contract
only if there is doubt in its letter. No such ambiguity exists here.
Moreover, Section 17 of the Negotiable Instruments Law states, viz:
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:
x x x x x x 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.
The defense of petitioners that the promissory note does not convey their true
intent in executing the document is unavailing. Even if they intended to sign
the note merely as officers of Embassy Farms, the continuing suretyship
agreement they subsequently executed makes them solidarily liable with the
principal, Embassy Farms.
BOARD OF INLAND REVENUE v. HADDOCK
Nota Bene: This is a fictitious legal case by humorist A.P. Herbert.
Summary:
- Albert Haddock contested the tax bill issued by the Collector of
Taxes for his tax bill for being excessive, particularly in view of the
inadequate consideration he believed he received for his government
service
- Eventually, the tax bill was reduced to £57 and 10 shillings
- As payment, he delivered a white cow “of malevolent aspect”
- On the cow, these words were stenciled in red ink
“To the London and Literary Bank, Limited
Pay the Collector of Taxes, who is no gentleman, or Order,
the sum of fifty seven pounds £57/0/0 (and may he rot!)
ALBERT HADDOCK”
- After his tender of the cow as payment, he demanded a receipt
- During the hearing, the fictitious judge, Sir Basil String, enquired
whether the stamp duty has been paid, which was confirmed by the
prosecutor, Sir Joshua Hoot (attached to the horn)
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DIGEST COMPILATION 1: Bills, Notes and Commercial Papers | Day 3 | January 27, 2016
- The Collector of course declined the cow, objecting that it would be
impossible to pay it into a bank account
- Haddock suggested that he endorse the cow to a third party to whom
he might owe money
- The prosecutor informed the court that the collector did indeed try to
endorse the cheque on its back (actually, on the cow’s abdomen)
- However, the cow didn’t like it: “[t]he cow … appeared to resent
endorsement and adopted a menacing posture”
- The Collector declined to take the cheque, prompting Haddock to
lead the cow away
- He was eventually arrested for hauling the cow in Trafalgar
Square for causing an obstruction, leading to the co-joined criminal
case, R. v Haddock (case #1)
- Then, he was summoned by the Board of Inland Revenue for non-
payment of income tax (case #2)
- DEFENSES:
o He had tendered a cheque in payment of income tax
o There was nothing in law to say it must be on paper of
specified dimensions
o Since a cheque was only an order to a bank to pay money to
the person in possession of the cheque or a person named on
the cheque, a cheque could be written on notepaper
o He said he had "drawn cheques on the backs of menus, on
napkins, on handkerchiefs, on the labels of wine bottles; all
these cheques had been duly honoured by his bank and
passed through the Bankers’ Clearing House"
o There was no distinction in law between a cheque on a
napkin and a cheque on a cow
o He admitted that a cheque was not legal tender in that it
could not lawfully be refused; but it was accepted by custom
as a legitimate form of payment
o In Saxon England, cattle was described as viva pecunia or
‘living money’
o He had no cheque-forms available
o Since he was anxious to meet his tax obligations promptly
and horses and other animals used to be seen frequently in
the streets of London, he used the cow
o He had funds in the bank
o The cow having been tendered, the Collector was stopped
from charging him with failure to pay
- When asked as to motive, he admitted on cross-examination that he
may have had in his mind an idea to ridicule the taxman. "But why
not? There is no law against ridiculing the income tax."
- In relation to the criminal prosecution, Haddock said it was a nice
thing if in the heart of the commercial capital of the world a man
could not convey a negotiable instrument down the street without
being arrested. If a disturbance was caused by a crowd, the
policeman should arrest the crowd, not him.
- RULING: absolved on both the tax case and the criminal case
o As to the tax:
 An order to pay is an order to pay, whether it is
made on the back of an envelope or on the back of a
cow
 Haddock had sufficient funds in the bank
 “The Collector did wrong, by custom, if not by law,
in refusing to take the proffered animal, and the
summons issued at his instance will be discharged.”
o As to the crime of obstruction:
 It’s not unlawful to conduct a cow through London
streets
 “The horse, at the present time a much less useful
animal, constantly appears in those streets without
protest, and the motorcar, more unnatural and
unattractive still, is more numerous than either
animal.”
 Also, the cow was not just a cow, but was invested
with all the dignity of a bill of exchange
 The Constable should have arrested the crowd
- P.S. Haddock sued the Constable who arrested him.
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