NEGOTIABLE INSTRUMENTS LAW CASE DIGEST 2017-2018
NEGOTION
LORETO D. DE LA VICTORIA vs.
HON. JOSE P. BURGOS
FACTS:
Sesbreño filed a complaint for damages against Assistant City
Fiscals Mabanto, Jr., and Rama, Jr., before the Regional Trial
Court. Judgment was rendered ordering the defendants to pay
P11,000.00 to the plaintiff, private respondent herein. The
decision having become final and executory.
A notice of garnishment was served on de la Victoria as City
Fiscal of Mandaue City where defendant Mabanto, Jr., was then
detailed.
Dela Victoria moved to quash the notice of garnishment claiming
that he was not in possession of any money, funds, credit,
property or anything of value belonging to Mabanto, Jr., except
his salary and RATA checks, but that said checks were not yet
properties of Mabanto, Jr., until delivered to him. He further
claimed that, as such, they were still public funds which could
not be subject to garnishment.
ISSUE: Whether a check still in the hands of the maker or its
duly authorized representative is owned by the payee before
physical delivery to the latter.
RULING:
As Assistant City Fiscal, the source of the salary of Mabanto, Jr.,
is public funds. He receives his compensation in the form of
checks from the Department of Justice through petitioner as City
Fiscal of Mandaue City and head of office. Under Sec. 16 of the
Negotiable Instruments Law, every contract on a negotiable
instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As ordinarily
understood, delivery means the transfer of the possession of the
instrument by the maker or drawer with intent to transfer title
to the payee and recognize him as the holder thereof.
The salary check of a government officer or employee such as a
teacher does not belong to him before it is physically delivered
to him. Until that time the check belongs to the government.
Accordingly, before there is actual delivery of the check, the
payee has no power over it; he cannot assign it without the
consent of the Government.
As a necessary consequence of being public fund, the checks
may not be garnished to satisfy the judgment. The rationale
behind this doctrine is obvious consideration of public policy.
The Court succinctly stated in Commissioner of Public Highways
v. San Diego that —
The functions and public services rendered by the State cannot
be allowed to be paralyzed or disrupted by the diversion of
public funds from their legitimate and specific objects, as
appropriated by law.
DEVELOPMENT OF RIZAL BANK vs.
SIMA WEI
FACTS:
In consideration for a loan extended by petitioner Bank to
respondent Sima Wei, the latter executed and delivered to the
former a promissory note. Sima Wei issued two crossed checks
payable to petitioner Bank drawn against China Banking
Corporation for the payment of the balance.
These two checks were not delivered to the petitioner-payee or
to any of its authorized representatives. For reasons not shown,
these checks came into the possession of respondent Lee Kian
Huat, who deposited the checks without the petitioner-payee's
indorsement (forged or otherwise) to the account of respondent
Plastic Corporation of the Producer's Bank.
Cheng Uy, Branch Manager of Producers Bank, relying on the
assurance of respondent Samson Tung, President of Plastic
Corporation, that the transaction was legal and regular,
instructed the cashier of Producers Bank to accept the checks
for deposit and to credit them to the account of said Plastic
Corporation, inspite of the fact that the checks were crossed and
payable to petitioner Bank and bore no indorsement of the
latter. Hence, petitioner filed the complaint.
ISSUE: Whether or not Sima Wei is freed from liability upon
issuing the checks payable to the bank.
RULING:
Sima Wei is not freed from liability.
The normal parties to a check are the drawer, the payee and
the drawee bank. Courts have long recognized the business
custom of using printed checks where blanks are provided for
the date of issuance, the name of the payee, the amount
payable and the drawer's signature. All the drawer has to do
when he wishes to issue a check is to properly fill up the blanks
and sign it. However, the mere fact that he has done these does
not give rise to any liability on his part, until and unless the
check is delivered to the payee or his representative.
A negotiable instrument, of which a check is, is not only a written
evidence of a contract right but is also a species of property.
Just as a deed to a piece of land must be delivered in order to
convey title to the grantee, so must a negotiable instrument be
delivered to the payee in order to evidence its existence as a
binding contract. Section 16 of the Negotiable Instruments Law
which governs checks, provides in part:
Every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of
giving effect thereto. . . .
Thus, the payee of a negotiable instrument acquires no interest
with respect thereto until its delivery to him. Delivery of an
instrument means transfer of possession, actual or constructive,
from one person to another. Without the initial delivery of the
instrument from the drawer to the payee, there can be no
liability on the instrument. Moreover, such delivery must be
intended to give effect to the instrument.
Notwithstanding the above, it does not necessarily follow that
the drawer Sima Wei is freed from liability to petitioner Bank
under the loan evidenced by the promissory note agreed to by
her. Her allegation that she has paid the balance of her loan
with the two checks payable to petitioner Bank has no merit for
these checks were never delivered to petitioner Bank. And even
granting, without admitting, that there was delivery to petitioner
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Bank, the delivery of checks in payment of an obligation does
not constitute payment unless they are cashed or their value is
impaired through the fault of the creditor. None of these
exceptions were alleged by respondent Sima Wei.
Therefore, unless respondent Sima Wei proves that she has
been relieved from liability on the promissory note by some
other cause, petitioner Bank has a right of action against her for
the balance due thereon.
However, insofar as the other respondents are concerned,
petitioner Bank has no privity with them. Since petitioner Bank
never received the checks on which it based its action against
said respondents, it never owned them (the checks) nor did it
acquire any interest therein. Thus, anything which the
respondents may have done with respect to said checks could
not have prejudiced petitioner Bank. It had no right or interest
in the checks which could have been violated by said
respondents. Petitioner Bank has therefore no cause of action
against said respondents, in the alternative or otherwise. If at
all, it is Sima Wei, the drawer, who would have a cause of action
against her co-respondents, if the allegations in the complaint
are found to be true.
METROPOL (BACOLOD) FINANCING & INVESTMENT
CORPORATION vs. SAMBOK MOTORS COMPANY and
NG SAMBOK SONS MOTORS CO., LTD.
FACTS:
Villaruel executed a promissory note in favor of Ng Sambok Sons
Motors Co., Ltd., payable in 12 equal monthly installments with
interest at the rate of one percent per month.
Sambok, a sister company of Ng Sambok Sons Motors Co., Ltd.,
and under the same management as the former, negotiated and
indorsed the note in favor of plaintiff Metropol Financing &
Investment Corporation with the following indorsement:
Pay to the order of Metropol Bacolod
Financing & Investment Corporation with
recourse. Notice of Demand; Dishonor;
Protest; and Presentment are hereby
waived.
SAMBOK MOTORS CO. (BACOLOD)
By:
RODOLFO G. NONILLO Asst. General
Manager
Dr. Villaruel failed to pay the promissory note as demanded,
hence Metropol notified Sambok as indorsee of said note of the
fact that the same has been dishonored and demanded
payment.
Sambok failed to pay, so Metropol filed a complaint for collection
of a sum of money before the Court of First Instance.
ISSUE: Whether or not the added word "with recourse" in the
indorsement pertains a qualified indorsement.
RULING:
The indorsement does not pertain to a qualified indorsement.
A qualified indorsement constitutes the indorser a mere assignor
of the title to the instrument. It may be made by adding to the
indorser's signature the words "without recourse" or any words
of similar import. Such an indorsement relieves the indorser of
the general obligation to pay if the instrument is dishonored but
not of the liability arising from warranties on the instrument as
provided in Section 65 of the Negotiable Instruments Law
already mentioned herein. However, appellant Sambok indorsed
the note "with recourse" and even waived the notice of demand,
dishonor, protest and presentment.
"Recourse" means resort to a person who is secondarily liable
after the default of the person who is primarily liable. Appellant,
by indorsing the note "with recourse" does not make itself a
qualified indorser but a general indorser who is secondarily
liable, because by such indorsement, it agreed that if Dr.
Villaruel fails to pay the note, plaintiff-appellee can go after said
appellant. The effect of such indorsement is that the note was
indorsed without qualification. A person who indorses without
qualification engages that on due presentment, the note shall
be accepted or paid, or both as the case may be, and that if it
be dishonored, he will pay the amount thereof to the holder.
Appellant Sambok's intention of indorsing the note without
qualification is made even more apparent by the fact that the
notice of demand, dishonor, protest and presentment were an
waived. The words added by said appellant do not limit his
liability, but rather confirm his obligation as a general indorser.
The appellant is only secondarily liable because after an
instrument is dishonored by non-payment, the person
secondarily liable thereon ceases to be such and becomes a
principal debtor. His liability becomes the same as that of the
original obligor. Consequently, the holder need not even
proceed against the maker before suing the indorser.
SESBREÑO vs COURT OF APPEALS
[G.R. No. 89252. May 24, 1993.]
Facts:
Petitioner made a money market placement in the amount of
P300,000.00 with the Philippine Underwriters Finance
Corporation ("Philfinance) with a term of thirty-two (32) days.
Phhilfinance issued several documents to petitioner including
the Certificate of Confirmation of sale “without recourse” of
Delta Motors Corporation (DMC) promissory note.
He sought to encash the post-dated checks issued by
Philfinance. However, the checks were dishonored for having
been drawn against insufficient funds. PhilFinance issued to
Sesbreno the Certificate of Confirmation of Sale of a Delta Motor
Corporation Promissory Note, the Certificate of Securities
Delivery Receipt indicating the sale of the note with notation
that said security was in the custody of Pilipinas Bank, and
postdated checks drawn against the Insular Bank of Asia and
America for P304,533.33 payable on March 13, 1981. The
checks were dishonored for having been drawn against
insufficient funds. Pilipinas Bank never released the note, nor
any instrument related thereto, to Sesbreno; but Sesbreno
learned that the security which was issued on April 10, 1980,
maturing on 6 April 1981, has a face value of P2,300,833.33
with PhilFinance as payee and Delta Motors as maker; and was
stamped “non-negotiable” on its face. As Sesbreno was unable
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to collect his investment and interest thereon, he filed an action
for damages against Delta Motors and Pilipinas Bank. Delta
Motors contents that said promissory note was not intended to
be negotiated or otherwise transferred by Philfinance as
manifested by the word "non-negotiable" stamped across the
face of the Note.
Issue:
Whether the non-negotiability of a promissory note prevents its
assignment.
SUPREME COURT:
No.
Negotiation of a negotiable instrument must be distinguished
from the assignment or transfer of an instrument whether that
be negotiable or non-negotiable. Only an instrument qualifying
as a negotiable instrument under the relevant statute may be
negotiated either by indorsement thereof coupled with delivery,
or by delivery alone where the negotiable instrument is in bearer
form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal
consequences of negotiation as distinguished from assignment
of a negotiable instrument are, of course, different. A non-
negotiable instrument may, obviously, not be negotiated; but it
may be assigned or transferred, absent an express prohibition
against assignment or transfer written in the face of the
instrument.
In this regard, the non-negotiability of the promissory note does
not prohibit its transferability and negotiability.
"The words 'not negotiable,' "The words 'not negotiable,'
stamped on the face of the instrument, did not destroy its
assignability, but the sole effect was to exempt such instrument
from the statutory provisions relative thereto, and as such,
though not
negotiable, may be transferred by assignment; the assignee
taking subject to the equities between the original parties.
In this case, the promissory note while marked "non-
negotiable," was not at the same time stamped "non-
transferrable" or "non-assignable." It contained no stipulation
which prohibited Philfinance from assigning or transferring, in
whole or in part, that Note.
Further, partial assignment of a promissory note is legally
binding and enforceable. Delta adduced the "Letter of
Agreement" which it had entered into with Philfinance. There is
nothing in his "Letter of Agreement" which can be reasonably
construed as a prohibition upon Philfinance assigning or
transferring all or part of the promissory note, before the
maturity thereof. It is scarcely necessary to add that, even had
this "Letter of Agreement" set forth an explicit prohibition of
transfer upon Philfinance, such a prohibition cannot be invoked
against an assignee or transferee of the Note who parted with
valuable consideration in good faith and without notice of such
prohibition.
DEFENSES
ATRIUM MANAGEMENT CORPORATION vs COURT OF
APPEALS
[G.R. No. 109491. February 28, 2001.]
Facts:
Hi-Cement Corporation through its corporate signatories,
Lourdes M. de Leon as treasurer, and the late Antonio de las
Alas, Chairman, issued checks in favor of E.T. Henry and Co.
Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the
four checks to petitioner Atrium for valuable consideration.
Upon presentment for payment, the drawee bank dishonored all
four checks for the common reason "payment stopped". Atrium,
thus, instituted this action after its demand for payment of the
value of the checks amounting to 2 million was denied.
At the trial, petitioner presented as its witness Carlos C. Syquia
who testified that Enrique Tan of E.T. Henry approached Atrium
for financial assistance, offering to discount four RCBC checks in
the total amount of P2 million, issued by Hi-Cement in favour of
E.T. Henry. Atrium agreed to discount the checks, provided it be
allowed to confirm with Hi-Cement the fact that the checks
represented payment for petroleum products which E.T. Henry
delivered to Hi-Cement.
Hi-Cement presented as witness Ms. Erlinda Yap who testified
that she was once a secretary to the treasurer of Hi-Cement,
Lourdes M. de Leon, and as such she was familiar with the four
RCBC checks as the postdated checks issued by Hi-Cement to
E.T. Henry upon instructions of Ms. de Leon. She testified that
E.T. Henry offered to give Hi- Cement a loan which the subject
checks would secure as collateral.
The trial court rendered a decision holding de Leon, ET Company
and Hi-Cement to pay petitioner jointly and severally the amount
claimed.
De Leon averred that the trial court erred in ruling that Atrium
was an ordinary holder, not a holder in due course of the
rediscounted checks.
On appeal, the Court of Appeals modified the decision of the
lower court absolving Hi-Cement Corporation from liability. It
ruled that: (1)Lourdes M. de Leon was not authorized to issue
the subject checks in favor of E.T. Henry, Inc.; (2) The issuance
of the subject checks by Lourdes M. de Leon and the late
Antonio de las Alas constituted ultra vires acts; and (3) The
subject checks were not issued for valuable consideration.
Issue:
Whether or not Atrium was a holder of the checks in due course.
SUPREME COURT:
No.
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The Negotiable Instruments Law, Section 52 defines a holder in
due course, thus:
"A holder in due course is a holder
who has taken the instrument
under the following conditions:
(a) That it is complete and regular
upon its face;
(b) That he became the holder of
it before it was overdue, and
without notice that it had been
previously dishonored, if such was
the fact;
(c) That he took it in good faith
and for value;
(d) That at the time it was
negotiated to him he had no
notice of any infirmity in the
instrument or defect in the title of
the person negotiating it."
In the instant case, the checks were crossed checks and
specifically indorsed for deposit to payee's account only. From
the beginning, Atrium was aware of the fact that the checks
were all for deposit only to payee's account, meaning E.T.
Henry. Clearly, then, Atrium could not be considered a holder in
due course.
However, it does not follow as a legal proposition that simply
because petitioner Atrium was not a holder in due course for
having taken the instruments in question with notice that the
same was for deposit only to the account of payee E.T. Henry
that it was altogether precluded from recovering on the
instrument. The Negotiable Instruments Law does not provide
that a holder not in due course cannot recover on the
instrument.
The disadvantage of Atrium in not being a holder in due course
is that the negotiable instrument is subject to defenses as if it
were non-negotiable. One such defense is absence or failure of
consideration.
VICENTE R. DE OCAMPO & CO vs ANITA GATCHALIAN
[G.R. No. L-15126. November 30, 1961.]
Facts:
Manuel Gonzales had his wife hospitalized in Ocampo Clinic
owned by petitioner. He was not able to pay the fees and
expenses of hospitalization for the release of his wife, he
designed a scheme to pay-off his debt. Defendant then was
interested in looking for a car for the use of her family. She was
offered by Manuel who was accompanied by Emil Fajardo, the
latter being personally known to defendant. Said Manuel
represented to defendant that he was duly authorized by the
owner of the car, Ocampo Clinic (petitioner), to look for a buyer
of said car and to negotiate for and accomplish sale. Defendant
then requested Manuel to bring the car and the certificate of
registration of the car so that her husband would be able to see
them. However, Manuel advised that the owner of the car will
not be willing to give the certificate of registration unless there
is a showing that the party interested in the purchase of said car
is ready and willing to make such purchase and that a check
which is needed to be shown to the owner as evidence of buyer's
good faith in the intention to purchase the said car. The check
is for safekeeping only of Manuel and to be returned to
defendant when Manuel brings the car and the certificate of
registration. However, Manuel did not appear the following day.
Meanwhile, Manuel having received the check delivered the
same to Ocampo Clinic, in payment of the fees and expenses
arising from the hospitalization of his wife. Petitioner received
the check as payment of their indebtedness and that upon
receipt of said check, petitioner gave Matilde (wife) P158.25, the
difference between the face value of the check and her
indebtedness.
For failure to show, defendant issued a 'Stop Payment Order' on
the check with the drawee bank. Such order was issued without
previous notice on the petitioner. In effect, petitioner was not
able to encash the check.
The defendant argued that she had no intention transfer her
property in the instrument as it was for safekeeping merely and,
therefore, there was no delivery required by law and that
petitioner was not a holder in due course because there was no
negotiation prior to petitioner acquiring the possession of the
check and that he acquired the check with notice of defect in
the title of the holder. Petitioner, on the other hand, argued that
he was a holder in due course and was named as payee in the
instrument.
Issue:
Whether or not De Ocampo is a holder in due course.
SUPREME COURT:
No.
If one is such a holder in due course, it is immaterial that he
was the payee and an immediate party to the
instrument. Section 52, Negotiable Instruments Law, defines
holder in due course, thus:
"A holder in due course is a holder
who has taken the instrument
under the following conditions:
(a) That it is complete and regular
upon its face;
(b) That he became the holder of
it before it was overdue, and
without notice that it had been
previously dishonored, if such was
the fact;
(c) That he took it in good faith
and for value;
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(d) That at the time it was
negotiated to him he had no
notice of any infirmity in the
instrument or defect in the title of
the person negotiating it."
Further, Section 52 (c) provides that a holder in due course is
one who takes the instrument "in good faith and for value;"
Section 59, "that every holder is deemed prima facie to be
holder in due course;" and Section 52 (d), that in order that one
may be a holder in due course it is necessary that "at the time
the instrument was negotiated" to him "he had no notice of any
. . . defect in the title of the person negotiating it;" and lastly
Section 59, that every holder is deemed prima facie to be a
holder in due course.
Where a holder's title is defective or suspicious, it cannot be
stated that the payee acquired the check without the knowledge
of said defect in holder's title, and for this reason the
presumption that it is a holder in due course or that it acquired
the instrument in good faith does not exist.
Where the payee acquired the check under circumstances which
should have put it to inquiry, why the holder had the check and
used it, to pay his own personal account, the duty devolved
upon it to prove that it actually acquired said check in good faith.
In this case, De Ocampo is not a holder in due course for his
lack of good faith. De Ocampo should have inquired as to the
legal title of Manuel to the said check. The fact that Gatchalian
has no obligation to De Ocampo and yet he’s named as the
payee in the check hould have apprised De Ocampo; that the
check did not correspond to Matilde Gonzales’ obligation with
the clinic because of the fact that it was for P600.00 – more than
the indebtedness; that why was Manuel in possession of the
check – all these gave De Ocampo the duty to ascertain from
the holder Manuel Gonzales what the nature of the latter’s title
to the check was or the nature of his possession.
CELY YANG vs. HON. COURT OF APPEALS
[G.R. No. 138074. August 15, 2003.]
Facts:
Cely Yang and Prem Chandiramani entered into an
agreement whereby the latter was to give Yang a PCIB
manager's check in exchange for two (2) of Yang's manager's
checks, both payable to the order of private respondent
Fernando David. They agreed that the former would secure from
FEBTC a dollar draft in the amount of US$200,000.00, payable
to PCIB which Chandiramani would exchange for another dollar
draft in the same amount to be issued by Hang Seng Bank Ltd.
of Hong Kong.
Yang gave the cashier's checks and dollar drafts to her
business associate, Albert Liong, to be delivered to
Chandiramani by Liong's messenger, Danilo Ranigo. Ranigo was
to meet Chandiramani at Philippine Trust Bank where he would
turn over Yang’s cashier's checks and dollar draft to him and
deliver it to Ranigo the PCIB manager's check and a Hang Seng
Bank dollar draft. Chandiramani did not appear and Ranigo
allegedly lost the two cashier’s checks and the dollar draft
bought by petitioner. Ranigo reported the alleged loss of the
checks and the dollar draft to Liong.
Liong, in turn, informed Yang, and the loss was then
reported to the police. It turns out that the checks and the dollar
draft were not lost, for Chandiramani was able to get hold of
said instruments, without delivering the exchange consideration
consisting of the PCIB manager's check and the Hang Seng Bank
dollar draft. Chandiramani delivered to respondent Fernando
David at China Banking Corporation.
Chandiramani also deposited FEBTC Dollar Draft No.
4771, drawn upon the Chemical Bank, New York for
US$200,000.00 in PCIB.
ISSUE: Whether the Court of Appeals erred in holding herein
respondent Fernando David to be a holder in due course
RULING:
Every holder of a negotiable instrument is deemed
prima facie a holder in due course. However, this presumption
arises only in favor of a person who is a holder as defined in
Section 191 of the Negotiable Instruments Law, meaning a
"payee or indorsee of a bill or note, who is in possession of it,
or the bearer thereof.
It is not disputed that David was the payee of the
checks in question. First, Section 24 18 of the Negotiable
Instruments Law creates a presumption that every party to an
instrument acquired the same for a consideration 19 or for
value. The law itself creates a presumption in David's favor that
he gave valuable consideration for the checks in question. In
alleging otherwise, the petitioner has the burden to prove that
David got hold of the checks absent said consideration. It shows
that the petitioner failed to discharge her burden of proof. The
petitioner's averment that David did not give valuable
consideration when he took possession of the checks is
unsupported, devoid of any concrete proof to sustain it.
Second, petitioner fails to point any circumstance
which should have put David on inquiry as to the why and
wherefore of the possession of the checks by Chandiramani.
David was not privy to the transaction between petitioner and
Chandiramani. Instead, Chandiramani and David had a separate
dealing in which it was precisely Chandiramani's duty to deliver
the checks to David as payee. David thus had no obligation to
ascertain from Chandiramani what the nature of the latter's title
to the checks was, if any, or the nature of his possession. Thus,
we cannot hold him guilty of gross neglect amounting to legal
absence of good faith, absent any showing that there was
something amiss about Chandiramani's acquisition or
possession of the checks.
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LIABILITIES OF PARTIES
THE PHILIPPINE NATIONAL BANK
vs. BARTOLOME PICORNELL
[G.R. No. L-18751. September 26, 1922.]
Facts:
Bartolome Picornell, following instruction Hyndman,
Tavera & Ventura, bought in Cebu 1,735 bales of tobacco.
Picornell obtained from the branch of the National Bank in Cebu
the sum of P39,529,83, the value of the tobacco, together with
his commission of 1 real per quinta drawn through a bill of
exchange. This instrument was delivered to the branch of the
National Bank in Cebu, together with the invoice and bill of
lading of the tobacco, which was shipped in the boat Don
Ildefonso, consigned to Hyndman, Tavera & Ventura at Manila.
The invoice and bill of lading were delivered to the
National Bank with the understanding that the bank should not
deliver them to Hyndman, Tavera & Ventura except upon
payment of the bill; which condition was expressed by the well-
known formula "D/P".The central office of the National bank in
Manila received the bill and the aforesaid documents annexed
thereto and presented the bill to Hyndman, Tavera & Ventura,
who accepted it.
The tobacco having arrived at Manila, the firm of
Tambunting, owner of the ship Don Ildefonso, that brought the
shipment, requested Hyndman, Tavera & Ventura to send for
the goods, which was done by the company without the
knowledge of the National Bank which retained and always had
in its possession the invoice and bill of lading of the tobacco,
until it presented them as evidence at the trial.
Hyndman, Tavera & Ventura proceeded to the
examination of the tobacco and notify Picornell that of the
tobacco received, there was a certain portion which was of no
use and was damaged. This the only whenPicornell learned that
Hyndman, Tavera & Ventura had in their possession the
tobacco.
Issue: WON a drawee is liable to the payee upon acceptance.
RULING:
This action is for the recovery of the value of the bill of
exchange above-mentioned. The Hyndman, Tavera & Ventura
company accepted it unconditionally, but did not pay it at its
maturity. The question whether or not the tobacco was worth
the value of the bill, does not concern the plaintiff bank. Such
partial want of consideration, if it was, does not exist with
respect to the bank which paid to Picornell the full value of said
bill of exchange. The bank was a holder in due course, and was
such for value full and complete. The Hyndman, Tavera &
Ventura company cannot escape liability in view of section 28 of
the Negotiable Instruments Law.
The fact that Picornell was a commission agent of
Hyndman, Tavera & Ventura, in the purchase of the tobacco,
does not necessarily make him an agent of the company in its
obligations arising from the drawing of the bill by him.
FAR EAST BANK & TRUST COMPANY vs.
GOLD PALACE JEWELLERY CO
[G.R. No. 168274. August 20, 2008.]
Facts:
Samuel Tagoe, purchased from Gold Palace's store at
SM-North EDSA several pieces of jewelry valued at P258,000.00.
As payment, he offered Foreign Draft No. M-069670 issued by
the United Overseas Bank (Malaysia) BHD Medan Pasar, Kuala
Lumpur Branch (UOB), addressed to the Land Bank of the
Philippines, Manila (LBP), and payable to the respondent
company. Yang, the assistant general manager of Gold Palace
inquired from Far East as to the nature of the draft. The teller
informed her that the same was similar to a manager's check,
but advised her not to release the pieces of jewelry until the
draft had been cleared. Respondent Julie Yang-Go, the manager
of Gold Palace deposited the draft in the company's account with
the Far East.
When Far East, the collecting bank, presented the draft
for clearing to LBP, the drawee bank, the latter cleared the
same. The foreigner eventually returned to respondent's store
to claim the purchased goods. After ascertaining that the draft
had been cleared, respondent Yang released the pieces of
jewelry to Samuel Tagoe. The amount in the draft was more
than the value of the goods purchased, she issued, as his
change through a check which was later presented for
encashment and was, in fact, paid by the said bank.
LBP informed Far East that the amount in Foreign Draft
No. M-069670 had been materially altered and that it was
returning the same. 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. Gold Palace had
already utilized portions of the amount. Because of this the
outstanding balance of its account was already inadequate, Far
East was able to debit only P168,053.36, but this was done
without a prior written notice to the account holder. Petitioner
demanded from respondents the payment of P211,946.64 or the
difference between the amount in the materially altered draft
and the amount debited from the respondent company's
account.
Issue: WON Gold Palace should be liable for the altered foreign
draft
RULING:
Act No. 2031, or the Negotiable Instruments Law (NIL),
explicitly provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of
his acceptance. This provision applies with equal force in case
the drawee pays a bill without having previously accepted it. His
actual payment of the amount in the check implies not only his
assent to the order of the drawer and a recognition of his
corresponding obligation to pay the aforementioned sum, but
also, his clear compliance with that obligation. Actual payment
by the drawee is greater than his acceptance, which is merely a
promise in writing to pay. The payment of a check includes its
acceptance.
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NEGOTIABLE INSTRUMENTS LAW CASE DIGEST 2017-2018
In this case, the drawee bank cleared and paid the
subject foreign draft and forwarded the amount thereof to the
collecting bank. The latter then credited to Gold Palace's account
the payment it received. Following the plain language of the law,
the drawee, by the said payment, recognized and complied with
its obligation to pay in accordance with the tenor of his
acceptance. LBP was liable on its payment of the check
according to the tenor of the check at the time of payment,
which was the raised amount.
Because of that engagement, LBP could no longer
repudiate the payment it erroneously made to a due course
holder. SC held that Gold Palace was not a participant in the
alteration of the draft, was not negligent, and was a holder in
due course — it received the draft complete and regular on its
face, before it became overdue and without notice of any
dishonor, in good faith and for value, and absent any knowledge
of any infirmity in the instrument or defect in the title of the
person negotiating it. Having relied on the drawee bank's
clearance and payment of the draft and not being negligent (it
delivered the purchased jewelry only when the draft was cleared
and paid), respondent is amply protected by the said Section 62.
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 based upon a transfer
of title and are available only to holders in due course, 48 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, therefore, could not debit
respondent's account for the amount it refunded to the drawee
bank.
ASSOCIATED BANK vs TAN
Facts:
Tan is a regular depositor-creditor of Associated Bank (Bank).
He deposited a postdated UCPB check with the Bank in the
amount of P101, 000 issued to him by a Willy Chen. The check
was duly entered in his bank record thereby making his balance
P297, 000. Allegedly, upon instruction of the Bank that the check
was already cleared and backed up by sufficient funds, Tan
withdrew the sum of P204, 000 leaving a balance of P57, 793.
A day after, Tan deposited the amount of P50, 000 making his
existing balance in the amount of P107, 793 because he has
issued several checks to his business partners. However, his
suppliers and business partners went back to him alleging that
the checks he issued bounced insufficiency of funds. Tan
informed the Bank to take positive steps regarding the matter
for he has sufficient funds to pay the amount of the subject
checks. The Bank did not bother not offer any apology regarding
the incident. Tan filed a complaint for damages.
The Bank filed a motion to dismiss denying the allegations of
Tan and alleged that no banking institution would give an
assurance to any of its client that the check deposited by him
had already been cleared and backed up by sufficient funds but
it could only presume that the same has been honored by the
drawee bank in view of the lapse of time that ordinarily takes
for a check to be cleared. And that it gave notice to Tan as to
the return of his UCPB check deposit in the amount of P101,
000.
Issues:
Whether or not Bank can be held liable for its debit made to the
account of Tan.
Ruling:
Yes, Bank is liable.
As a general rule, a bank is liable for the wrongful or tortuous
acts and declarations of its officers or agents within the course
and scope of their employment. Due to the very nature of their
business, banks are expected to exercise the highest degree of
diligence in the selection and supervision of their employees.
Jurisprudence has that the lack of diligence of servant is imputed
to the negligence of the employer, when the negligent or
wrongful act of the former proximately results in an injury to a
third person; in this case, the depositor.
Under the provisions of the Sec. 66 NIL regarding the liability of
a general indorser and the procedure for a notice of dishonor it
was incumbent on the bank to give proper notice to respondent.
A general indorser of a negotiable instrument engages that if
the instrument the check in this case is dishonored and the
necessary proceedings for its dishonor are duly taken, he will
pay the amount thereof to the holder. It has been held by a long
line of authorities that notice of dishonor is necessary to charge
an indorser and that the right of action against him does not
accrue until the notice is given.
In this case, prior to the mailing of notice of dishonor, and
without waiting for any action, the bank made use of the money
standing in his account to make good for the treasury warrant.
As to a depositor who has funds sufficient to meet payment of
a check drawn by him in favor of a third party, it has been held
that he has a right of action against the bank for its refusal to
pay such check in the absence of notice to him that the bank
has applied the funds so deposited in extinguishment of past
due claims held against him. As to an indorser, notice should
actually have been given him in order that he might protect his
interests.
ANG vs ASSOCIATED BANK
Facts:
Bank filed a collection suit against Ang and Liong for 2
promissory notes that they executed as principal debtor and co-
maker. Bank alleged that defendants obtained a loan of 50K and
30K evidenced by two promissory notes. As agreed, the loan
would be payable, jointly and severally, on Jan. 31, 1979 and
Dec. 8, 1978. Despite repeated demands for payment
defendants failed and refused to settle their obligation
amounting to 500k+. Liong only admitted to a loan amounting
to 80K, and pleaded that the bank be ordered to submit a more
reasonable computation. While Ang alleged that the Bank is not
the real party in interest as it is not the holder of the promissory
notes, and that the bank did not receive any valuable
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consideration for affixing his signatures on the notes but merely
lent his name as accommodation party.
The Bank countered that it is the real party in interest and is the
holder of the notes since the Associated Banking Corporoation
and Associated Citizens Bank are its predecessors-in-interest.
The fact that Ang never received any moneys in consideration
of the two loans and that such was known to the bank are
immaterial because, as an accommodation maker, he is
considered as solidary debtor who is primarily liable for the
payment of the promissory notes. Bank also contended that the
provisions on presentment for payment and notice of dishonor
were expressly waived by the Ang and that such waiver is not
against public policy pursuant to Sec 82 (c) and 109 of the NIL.
That there is even no necessity therefor since being a solidary
debtor he is absolutely required to pay and primarily liable on
both promissory notes.
Issues:
Whether or not Ang can be held liable for the promissory notes.
Ruling:
Ang can be held liable.
Under Sec. 29 of the NIL an accommodation party is a person
who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose
of lending his name to some other person. The accommodation
party is liable on the instrument to a holder for value even
though the holder, at the time of taking the instrument, knew
him or her to be merely an accommodation party, as if the
contract was not for accommodation.
The relation between an accommodation party and the
accommodated party is one of principal and surety, the
accommodation party being the surety. As such, he is deemed
an original promisor and debtor from the beginning. The surety’s
liability to the creditor is immediate, primary and absolute, he is
directly and equally bound with the principal.
Consequently, in issuing the promissory notes, petitioner as
accommodating party warranted to the holder in due course that
he would pay the same according to its tenor. it is no defense
to state on his part that he did not receive any value therefor
because the phase “without receiving value therefor” means
without receiving payment for lending his name. stated
differently, when a third person advances the face value of the
note to the accommodated party at the time of its creation, the
consideration for the note as regards its maker is the money
advanced to the accommodated party. It is enough that the
value was given for the note at the time of its creation. As in
the instant case, a sum of money was received by virtue of the
notes, hence, it is immaterial so far as the bank is concerned
whether one of the signers, has or has not received anything in
payment of the use of his name.
Since the liability of an accommodation party remains not only
primary but also unconditional to a holder for value, even of the
accommodated party receives an extension of the period for
payment without the consent of the accommodation party, the
latter is still liable for the whole obligation and such extension
does not release him because as far as a holder for value is
concerned, he is a solidary co-debtor.
The fact that the petitioner stands only as a surety in relation to
Liong is immaterial to the claim of the bank and does does not
a whit diminish nor defeat the rights of the latter as a holder for
value.
PRESENTMENT FOR PAYMENT
FAR EAST REALTY INVESTMENT INC. vs CA
Facts:
Petitioner filed a complaint against private respondents for
collection and payment of money representing the face value of
an unpaid dishonored check. Petitioner alleged that the private
respondents approached the petitioner at its office and asked
the latter to extend to them an accommodation loan which they
promised to pay jointly and severally, that they delivered to
petitioner the China Banking Check drawn by Tat and signed by
them at the back of said check, with assurance that after one
month, the said check would be redeemed by them by paying
cash, or said check can be presented for payment on or
immediately after one month and said bank would honor the
same, but when the aforesaid check was presented for payment
to the China Banking but said check bounced for the reason that
the account of the drawer had already been closed.
Subsequently, the petitioner demanded from private
respondents the payment of their aforesaid loan obligation but
the latter failed and refused to pay notwithstanding repeated
demands.
Private respondent Tat denied having any transaction or
negotiation of any check with the petitioner at any time, so it
could not be true that the and the other defendants approached
the petitioner for an accommodation loan.
Issues:
Whether or not presentment for payment and notice of dishonor
of the questioned check were made within reasonable time.
Ruling:
No.
Where the instrument is not payable on demand, presentment
must be made on the day it falls due. Where it is payable on
demand, presentment must be made within a reasonable time
after issue, except that in the case of a bill of exchange,
presentment for payment will be sufficient if made within a
reasonable time after the last negotiation therefor (Sec. 71 NIL)
In this case, the presentment and notice of dishonor were not
made within a reasonable time. Under these circumstances, the
petitioner undoubtedly failed to exercise prudence and diligence
on what he ought to do as required by law.
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NEGOTIABLE INSTRUMENTS LAW CASE DIGEST 2017-2018
THE INTERNATIONAL CORPORATE BANK (now UNION
BANK OF THE PHILIPPINES), petitioner, vs. SPS.
FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents
G.R. No. 141968 February 12, 2001
Facts:
The respondent Gueco Spouses obtained a loan from petitioner
International Corporate Bank (now Union Bank of the
Philippines) to purchase a car - a Nissan Sentra 1600 4DR, 1989
Model. In consideration thereof, the Spouses executed
promissory notes which were payable in monthly installments
and chattel mortgage over the car to serve as security for the
notes.1âwphi1.nêt
The Spouses defaulted in payment of installments.
Consequently, the Bank filed on August 7, 1995 a civil action
docketed as Civil Case No. 658-95 for "Sum of Money with
Prayer for a Writ of Replevin"1 before the Metropolitan Trial
Court of Pasay City, Branch 45. Desi Tomas, the Bank's Assistant
Vice President demanded payment of the amount of
P184,000.00 which represents the unpaid balance for the car
loan. After some negotiations and computation, the amount was
lowered to P154,000.00, However, as a result of the non-
payment of the reduced amount on that date, the car was
detained inside the bank's compound.
On August 28, 1995, Dr. Gueco went to the bank and talked
with its Administrative Support, Auto Loans/Credit Card
Collection Head, Jefferson Rivera. The negotiations resulted in
the further reduction of the outstanding loan to P150,000.00.
On August 29, 1995, Dr. Gueco delivered a manager's check in
amount of P150,000.00 but the car was not released because of
his refusal to sign the Joint Motion to Dismiss. It is the
contention of the Gueco spouses and their counsel that Dr.
Gueco need not sign the motion for joint dismissal considering
that they had not yet filed their Answer. Petitioner, however,
insisted that the joint motion to dismiss is standard operating
procedure in their bank to effect a compromise and to preclude
future filing of claims, counterclaims or suits for damages. After
several demand letters and meetings with bank representatives,
the respondents Gueco spouses initiated a civil action for
damages before the Metropolitan Trial Court of Quezon City,
Branch 33. The Metropolitan Trial Court dismissed the complaint
for lack of merit.
On appeal to the Regional Trial Court, Branch 227 of Quezon
City, the decision of the Metropolitan Trial Court was reversed.
In its decision, the RTC held that there was a meeting of the
minds between the parties as to the reduction of the amount of
indebtedness and the release of the car but said agreement did
not include the signing of the joint motion to dismiss as a
condition sine qua non for the effectivity of the compromise.
The case was elevated to the Court of Appeals, and the petition
for review on certiorari is hereby DENIED and the Decision of
the Regional Trial Court of Quezon City, Branch 227, in Civil Case
No. Q-97-31176, for lack of any reversible error, is AFFIRMED in
toto. Costs against petitioner.
Issue:
Whether or not the signing of the joint motion to dismiss a part
of the compromise agreement between the spouses and the
bank
Held:
No, it is not a part of the compromise agreement entered by the
parties. And thus, the signing is dispensible in releasing the car
to the spouses. And on the ancillary issue of the case, which is
the relevant issue for the subject, whether or not the spouses
should replace the check they paid to
the bank after it became stale, the answer is yes. It ap
peared that the check has not been encashed. The delivery of
the manager’s check did not constitute payment. The original
obligation to pay still exists. Indeed, the
circumstances that caused the non-
presentment of the check should be considered to determine
who should bear the loss. In this case, ICB held on the check
and refused to encash the same because of the controversy
surrounding the signing of the joint motion to dismiss. There is
no bad faith
or negligence on the part of ICB.
A stale check is one which has not been presented for
payment within a reasonable time after its issue. It is valueless
and, therefore, should not be paid. A check should be presented
for payment within a reasonable time after its issue. Here, what
is involved is a manager’s check, which is essentially a bank’s
own check and may be treated as a promissory note with the
bank as a maker. Even assuming that presentment is needed,
failure to present for payment within a reasonable time will
result to the discharge of the drawer only to the extent of the
loss caused by the delay but here there is no loss sustained.
Still, such failure to present on time does not wipe out liability.
NOTICE OF DISHONOR
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs. SPOUSES REYNALDO AND VICTORIA
ROYECA, Respondents.
G.R. No. 176664 July 21, 2008
Facts:
On August 23, 1993, spouses Reynaldo and Victoria Royeca
(respondents) executed and delivered to Toyota Shaw, Inc. a
Promissory Note3 for ₱577,008.00 payable in 48 equal monthly
installments of ₱12,021.00, with a maturity date of August 18,
1997. The Promissory Note provides for a penalty of 3% for
every month or fraction of a month that an installment remains
unpaid.
To secure the payment of said Promissory Note, respondents
executed a Chattel Mortgage4 in favor of Toyota over a certain
motor vehicle, more particularly described as follows:
p>Make and Type 1993 Toyota Corolla 1.3 XL
Motor No. 2E-2649879
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Serial No. EE100-9512571
Color D.B. Gray Met.
Toyota, with notice to respondents, executed a Deed of
Assignment5 transferring all its rights, title, and interest in the
Chattel Mortgage to Far East Bank and Trust Company (FEBTC).
Claiming that the respondents failed to pay four (4) monthly
amortizations covering the period from May 18, 1997 to August
18, 1997, FEBTC sent a formal demand to respondents on March
14, 2000 asking for the payment thereof, plus penalty.6 The
respondents refused to pay on the ground that they had already
paid their obligation to FEBTC.
FEBTC filed a Complaint for Replevin and Damages against the
respondents with the Metropolitan Trial Court (MeTC) of Manila
praying for the delivery of the vehicle, with an alternative prayer
for the payment of ₱48,084.00 plus interest and/or late payment
charges at the rate of 36% per annum from May 18, 1997 until
fully paid. The complaint likewise prayed for the payment of
₱24,462.73 as attorney’s fees, liquidated damages, bonding fees
and other expenses incurred in the seizure of the vehicle.
Respondents alleged that on May 20, 1997, they delivered to
the Auto Financing Department of FEBTC eight (8) postdated
checks in different amounts totaling ₱97,281.78. Respondents
further averred that they did not receive any notice from the
drawee banks or from FEBTC that these checks were
dishonored. They explained that, considering this and the fact
that the checks were issued three years ago, they believed in
good faith that their obligation had already been fully paid. They
alleged that the complaint is frivolous and plainly vexatious.
During trial, Mr. Vicente Magpusao testified that he had been
connected with FEBTC since 1994 and had assumed the position
of Account Analyst since its merger with BPI. He admitted that
they had, in fact, received the eight checks from the
respondents. However, two of these checks (Landbank Check
No. 0610947 and FEBTC Check No. 17A00-11551P) amounting
to ₱23,692.00 were dishonored. He recalled that the remaining
two checks were not deposited anymore due to the previous
dishonor of the two checks. He said that after deducting these
payments, the total outstanding balance of the obligation was
₱48,084.00, which represented the last four monthly
installments.
the MeTC dismissed the case and granted the respondents’
counterclaim for damages. On appeal, the Regional Trial Court
(RTC) set aside the MeTC Decision and ordered the respondents
to pay the amount claimed by the petitioner. The respondents
elevated the case to the Court of Appeals (CA) through a petition
for review. They succeeded in obtaining a favorable judgment
when the CA set aside the RTC’s Decision and reinstated the
MeTC’s Decision
Issue:
Whether or not the BPI should be granted replevin and
damages.
Held:
The petition is partly meritorious.
In Jimenez v. NLRC,20 cited by both the RTC and the CA, the
Court elucidated on who, between the plaintiff and defendant,
has the burden to prove the affirmative defense of payment:
As a general rule, one who pleads payment has the burden of
proving it. Even where the plaintiff must allege non-payment,
the general rule is that the burden rests on the defendant to
prove payment, rather than on the plaintiff to prove non-
payment. The debtor has the burden of showing with legal
certainty that the obligation has been discharged by payment.
When the existence of a debt is fully established by the evidence
contained in the record, the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers
such a defense to the claim of the creditor. Where the debtor
introduces some evidence of payment, the burden of going
forward with the evidence - as distinct from the general burden
of proof - shifts to the creditor, who is then under a duty of
producing some evidence to show non-payment.
Settled is the rule that payment must be made in legal tender.
A check is not legal tender and, therefore, cannot constitute a
valid tender of payment.23 Since a negotiable instrument is only
a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. Mere
delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains
suspended until the payment by commercial document is
actually realized.
To establish their defense, the respondents therefore had to
present proof, not only that they delivered the checks to the
petitioner, but also that the checks were encashed. The
respondents failed to do so. Had the checks been actually
encashed, the respondents could have easily produced the
cancelled checks as evidence to prove the same. Instead, they
merely averred that they believed in good faith that the checks
were encashed because they were not notified of the dishonor
of the checks and three years had already lapsed since they
issued the checks.1avvphi1
Because of this failure of the respondents to present sufficient
proof of payment, it was no longer necessary for the petitioner
to prove non-payment, particularly proof that the checks were
dishonored. The burden of evidence is shifted only if the party
upon whom it is lodged was able to adduce preponderant
evidence to prove its claim
To stress, the obligation to prove that the checks were not
dishonored, but were in fact encashed, fell upon the
respondents who would benefit from such fact. That payment
was effected through the eight checks was the respondents’
affirmative allegation that they had to establish with legal
certainty. If the petitioner were seeking to enforce liability upon
the check, the burden to prove that a notice of dishonor was
properly given would have devolved upon it.26 The fact is that
the petitioner’s cause of action was based on the original
obligation as evidenced by the Promissory Note and the Chattel
Mortgage, and not on the checks issued in payment thereof.
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Further, it should be noted that the petitioner, as payee, did not
have a legal obligation to inform the respondents of the dishonor
of the checks. A notice of dishonor is required only to preserve
the right of the payee to recover on the check. It preserves the
liability of the drawer and the indorsers on the check. Otherwise,
if the payee fails to give notice to them, they are discharged
from their liability thereon, and the payee is precluded from
enforcing payment on the check. The respondents, therefore,
cannot fault the petitioner for not notifying them of the non-
payment of the checks because whatever rights were
transgressed by such omission belonged only to the petitioner
In all, we find that the evidence at hand preponderates in favor
of the petitioner. The petitioner’s possession of the documents
pertaining to the obligation strongly buttresses its claim that the
obligation has not been extinguished. The creditor’s possession
of the evidence of debt is proof that the debt has not been
discharged by payment.27 A promissory note in the hands of the
creditor is a proof of indebtedness rather than proof of
payment.28 In an action for replevin by a mortgagee, it is prima
facie evidence that the promissory note has not been
paid.29 Likewise, an uncanceled mortgage in the possession of
the mortgagee gives rise to the presumption that the mortgage
debt is unpaid.
Nonetheless, the Court cannot ignore what the respondents
have consistently raised — that they were not notified of the
non-payment of the checks. Reasonable banking practice and
prudence dictates that, when a check given to a creditor bank
in payment of an obligation is dishonored, the bank should
immediately return it to the debtor and demand its replacement
or payment lest it causes any prejudice to the drawer. In light
of this and the fact that the obligation has been partially paid,
we deem it just and equitable to reduce the 3% per month
penalty charge as stipulated in the Promissory Note to 12% per
annum.32 Although a court is not at liberty to ignore the freedom
of the parties to agree on such terms and conditions as they see
fit, as long as they contravene no law, morals, good customs,
public order or public policy, a stipulated penalty, nevertheless,
may be equitably reduced by the courts if it is iniquitous or
unconscionable, or if the principal obligation has been partly or
irregularly complied with.
PRODUCERS BANK OF THE PHILIPPINES, Petitioner,
vs. EXCELSA INDUSTRIES, INC., Respondent.
G.R. No. 152071 May 8, 2009
Facts:
Respondent Excelsa Industries, Inc applied for a packing credit
line or a credit export advance with petitioner Producers Bank
of the Philippines. The application was supported by Letter of
Credit. Kwang Ju Bank, Ltd. of Seoul, Korea issued the letter of
credit through its correspondent bank, BPI for the account of
Shin Sung Commercial Co., Ltd., also located in Seoul, Korea.
T.L. World Development Corporation was the original
beneficiary of the letter of credit. For value received, T.L. World
transferred to respondent all its rights and obligations under the
said letter of credit. Petitioner approved respondent’s application
for a packing credit line. Respondent executed the
corresponding promissory notes evidencing the indebtedness.
Prior to the application for the packing credit line, respondent
had obtained a loan from petitioner in the form of a bill
discounted and secured credit accommodation in which there
was an outstanding at the time of the approval of the packing
credit line. The loan was secured by a real estate mortgage over
respondent’s properties. Eventually, Petitioner purchased the
drafts and export documents.
However, Kwang Ju Bank, Ltd. informed petitioner that it would
be returning the export documents on account of the non-
acceptance by the importer. Petitioner demanded from
respondent the payment of the export documents. Due to
respondent’s failure to heed the demand, petitioner moved for
the extrajudicial foreclosure on the real estate mortgage over
respondent’s properties.
A Certificate of Sale in favor of petitioner as the highest bidder
and the title was consolidated in its favor. Respondent instituted
an action for the annulment of the extrajudicial foreclosure with
prayer for preliminary injunction and damages against
petitioner. While the petitioner filed a petition for the issuance
of a writ of possession.
The RTC upheld the validity of the extrajudicial foreclosure and
ordering the issuance of a writ of possession in favor of
petitioner. The RTC held that the petitioner correctly exercised
its right to foreclose the real estate mortgage, which provided
that the same secured the payment of not only the loans already
obtained but also the export advances. However, the Court of
Appeals reversed the decision. The Court invalidated the
extrajudicial foreclosure of the real estate mortgage on the
ground that the posting and publication of the notice of
extrajudicial foreclosure proceedings did not comply with the
personal notice requirement.
ISSUE/S:
1. WON the REM can also serve as security for the
respondent’s drafts? YES
2. WON petitioner complied with the notice requirement?
YES
3. WON the respondent may still question the foreclosure
sale? NO
HELD:
Respondent executed a real estate mortgage containing a
“blanket mortgage clause,” also known as a “dragnet
clause.” Petitioner, therefore, was not precluded from seeking
the foreclosure of the real estate mortgage based on the unpaid
drafts drawn by respondent. In any case, respondent had
admitted that aside from the unpaid drafts, respondent also had
due and demandable loans.
The Court of Appeals invalidated the extrajudicial foreclosure of
the mortgage on the ground that petitioner had failed to furnish
respondent personal notice of the sale contrary to the stipulation
in the real estate mortgage. A perusal of the records of the case
shows that a notice of sheriff’s sale was sent by registered mail
to respondent and received in due course. Yet, respondent
claims that it did not receive the notice but only learned about
it from petitioner. In any event, paragraph 12 of the real estate
mortgage requires petitioner merely to furnish respondent with
the notice and does not oblige petitioner to ensure that
respondent actually receives the notice. On this score, the Court
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holds that petitioner has performed its obligation under
paragraph 12 of the real estate mortgage.
Plaintiff is estopped from questioning the foreclosure. The
plaintiff is guilty of laches and cannot at this point in time
question the foreclosure of the subject properties. Plaintiff
acknowledged such outstanding loans and advances to the
defendant bank and committed to liquidate the same. For failure
of the plaintiff to pay its obligations on maturity, defendant bank
foreclosed the mortgage on subject properties and there being
no redemption made by the plaintiff, title to said properties were
consolidated in the name of defendant. Undeniably, subject
foreclosure was done in accordance with the prescribed rules
GR 105836, March 07, 1994
CHECKS
SPS. MORAN v. CA
FACTS:
Sps. Moran are the owners of Wack-Wack Petron gasoline
station. They regularly purchase bulk fuel and other related
products from Petrophil Corporation on cash on delivery basis.
Orders for bulk fuel and other related products were made by
telephone and payments were effected by personal checks upon
delivery.
Maintaining 3 joint accounts in Citytrust Banking Corporation,
Sps. Moran drew a check for P50, 576 payable to Petrophil
Corporation. The next day, Sps. Moran issued another check in
the amount of P56, 090 in favor of the same corporation. The
total sum of the two checks was P106, 666 and these checks
were then deposited by Petrophil Corporation to its account with
PNB, the collecting bank. In turn, PNB presented them for
clearing with Philippine Clearing House Corporation in the
afternoon of the same day.
On the following day, George Moran went to Citytrust to oversee
their daily transactions. He deposited in the first Savings
Account the amount of P10, 874.58 and P6, 754.25 and likewise
deposited in the second Savings Account the amounts of P5, 900
and P35,100. The amount of P40,000 was then transferred by
him from the second Savings Account to their current account
by means of a pro forma withdrawal which was provided by the
bank, authorizing the latter to make the necessary transfer. At
the same time, amount of P66, 666 was transferred from second
Savings Account to the same current account through pre-
authorized transfer (PAT).
Then, George Moran was informed by his wife that Petrophil
refused to deliver their orders on credit basis because the two
checks they had previously issued were dishonored upon
presentment for payment as it was allegedly dishonored by bank
due to ‘insufficiency of funds’. The non-delivery of gasoline
forced Sps. Moran to temporarily stop business operations
causing them to suffer loss of earnings. In addition, Petrophil
cancelled their credit accommodation, forcing them to pay for
their purchases in cash.
Over 6 months after incident, Spouses Moran wrote to Citytrust
claiming that the bank’s dishonor of checks caused them
besmirched business and personal reputation, shame and
anxiety, hence they were contemplating filing of necessary legal
action unless bank issued a certification clearing their name and
pay them P1M as moral damages. Citytrust bank however did
not act favorably on their demands; hence, Sps. Moran filed a
complaint for damages. In turn, Citytrust filed a counterclaim for
damages, alleging that case filed against it was unfound and
unjust. After trial, RTC rendered judgment dismissing both
complaint and counterclaim. On appeal, CA affirmed the
decision of trial court.
ISSUE: Whether or not Sps. Moran can sue Citytrust for
damages for negligence
HELD:
No, Spouses Moran had no reason to complain, for they alone
were at fault.
Fixed Savings and current deposits of money in banks and
similar institutions shall be governed by the provisions
concerning simple loan. In other words, relationship between
bank and depositor is that of a debtor and creditor. By virtue of
the contract of deposit between banker and depositor, banker
agrees to pay checks drawn by depositor provided said depositor
has money in the hands of the bank. Hence, where bank
possesses funds of a depositor, it is bound to honor his checks
to the extent of the amount of his deposits. Failure of the bank
to pay the check of a merchant or trader, when deposit is
sufficient, entitled drawer to substantial damages without any
proof of actual damages. Conversely, bank is not liable for its
refusal to pay a check on account of insufficient funds,
notwithstanding fact that deposit may be made later in the day.
Before a bank depositor may maintain suit to recover specific
amount from his bank, he must first show that he had on deposit
sufficient funds to meet his demand.
Moreover, a drawer must remember his responsibilities every
time he issues a check. He must personally keep track of his
available balance in the bank and not rely on the bank to notify
him of necessity to fund certain check she previously issued. A
check as distinguished from ordinary bill of exchange is
supposed to be drawn against previous deposit of funds for it is
ordinarily intended for immediate payment. Also, between the
time of issuance of the checks and time of their presentment,
Spouses Moran had, at the very least, 24 hours to replenish their
balance in the bank.
Considering the clearing process adopted, as explained in the
aforequoted testimony, it is clear that the available balance on
December 14, 1983 was used by the bank in determining
whether or not there was sufficient cash deposited to fund the
two checks, although what was stamped on the dorsal side of
the two checks in question was "DAIF/12-15-83," since
December 15, 1983 was the actual date when the checks were
processed. As earlier stated, when petitioners' checks were
dishonored due to insufficiency of funds, the available balance
of second Savings Account, which was the subject of the PAT
agreement, was not enough to cover either of the two checks.
On December 14, 1983, when PNB, Pandacan branch presented
the checks for collection, the available balance for second
Savings Account, to repeat, was only P26,104.30 while Current
Account had no available balance. It was only on December 15,
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1983 at around ten o'clock in the morning that the necessary
funds were deposited, which unfortunately was too late to
prevent the dishonor of the checks.
GR 159590
HSBC v. Cecilia Diez Catalan
FACTS:
Frederick Arthur Thomson drew 5 checks payable to defendant
Cecilia. Catalan presented these checks to Hongkong and
Shanghai Banking Corporation Limited (HSBANK). The checks
were dishonored for having insufficient funds. Thomson
demanded that the checks be made good because he, in fact,
had sufficient funds. Still, HSBANK did not accept the checks.
Subsequently, Thomson died but Catalan was not paid yet. The
account was transferred to HSBC International Trustee Limited
(TRUSTEE). Catalan then requested TRUSTEE to pay her but still
refused and even asked her to submit back to them the original
checks for verification.
Catalan and her lawyer went to Hong Kong on their own
expense to personally submit the checks. They still were not
honored, leading Catalan to file a suit against HSBC to collect
the money.
ISSUE: Whether the check can be encashed.
RULING:
The SC held that the HSBC was being sued because of their
evident failure to heed the instructions of Thomson. HSBANK
cited Sec. 189 of the NIL but the SC said that what is being sued
is how they acted in relation to Catalan's claim for payment
despite repeated requests and not of the check's value.
The reason was likewise the same towards TRUSTEE as Catalan
even went to Hong Kong to personally deliver the checks.
GR 113236, March 5, 2001
Firestone Tire and Rubber Company v. CA
FACTS:
Luzon Development Bank (LDB), a banking corporation, had one
of its client-depositors the Fojas-Arca Enterprises Company
(Fojas-Arca). Fojas-Arca maintaining a special savings account
with Luzon Development Bank is authorized and allowed
withdrawals of funds therefrom through the medium of special
withdrawal slips which are supplied by the bank to Fojas-Arca.
Firestone Tire & Rubber Company (Firestone) and Fojas-Arca
entered into a franchised dealership agreement whereby Fojas-
Arca has the privilege to purchase on credit and sell Firestone’s
products. Pursuant to the agreement, Fojas-Arca purchased on
credit Firestone products amounting to P4, 896, 000. In
payment of these purchases, Fojas-Arca delivered 6 special
withdraw slips to Firestone drawn upon Luzon Development
Bank. In turn, these were deposited by Firestone with its current
account with Citibank. All of them were honored and paid by
Luzon Development Bank (LDB). This singular circumstance
made Firestone believe and rely on the fact that the succeeding
special withdrawal slips drawn upon Luzon Development Bank
would be equally sufficiently funded. Relying on such confidence
and belief, Firestone extended to Fojas-Arca other purchases on
credit of its products.
However, Firestone was informed by Citibank that special
withdrawal slips No. 42127 for P1, 198, 092.80 and No. 42129
for P880,000.00 were dishonored and not paid for the reason of
NO ARRANGEMENT. That information came about six months
from the time Fojas-Arca purchased tires from petitioner using
the subject withdrawal slips. As consequence, Citibank debited
Firestone account for the total sum of P2, 078, 092.80
representing the aggregate amount of the above-two special
withdrawal slips. Under such situation, Firestone averred that
the pecuniary losses it suffered is caused by and directly
attributable to Luzon Development Bank’s gross negligence.
Firestone’s counsel served a written demand upon Luzon
Development Bank (LDB) for the satisfaction of the damages but
the said bank refused. Hence, Firestone filed a complaint against
LDB. In reply, LDB asserted that the transactions mentioned are
that of Firestone and Fojas-Arca only in which LDB is not
involved; that the special withdrawal slips were honored and
treated as if it were checks, the truth being that when the special
withdrawal slips were received by LDB, it only verified whether
or not the signatures therein were authentic, and whether or
not thee deposit is sufficient to cover the withdrawal; that if
Firestone treated the slips paid by Fojas-Arca as checks then
Firestone has to blame itself for being grossly negligent in
treating the withdrawal slips as check when it is clearly stated
that the slips are non-negotiable.
RTC dismissed the complaint of Firestone. CA as well affirmed
the ruling of RTC. Hence, present petition.
ISSUE:
Whether or not Luzon Development Bank should be held liable
for damages suffered by Firestone due to its allegedly belated
notice of non-payment of subject withdrawal slips
HELD:
NO, LDB cannot be held liable.
It is to be noted that the withdrawal slips in question were non-
negotiable. Hence, rules governing giving of immediate notice
of dishonor of negotiable instrument do not apply in this case.
Thus, LDB 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 from LDB
could not be expected immediately, in contrast to situation
involving checks.
It bears stressing that Citibank could not have missed the non-
negotiable nature of withdrawal slips. Essence of negotiability
which characterizes a negotiable paper as credit instrument lies
in its freedom to circulate freely as substitute for money. The
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withdrawal slips in question lacked this character. A bank is

under obligation to treat accounts of its depositors with
meticulous care, whether such account consists only of a few
hundred pesos or of millions. The fact that other withdrawal slips
were honored and paid by LDB 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 highest degree of care.

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 latters
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.
The withdrawal slips deposited with petitioners 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.

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