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NIL finals case digest

1) RCBC SAVINGS BANK, versus NOEL M. ODRADA,

While a manager's check is automatically accepted, a holder other than a holder in due course is still
subject to defenses.

The drawee bank of a manager's check may interpose personal defenses of the purchaser of the
manager's check if the holder is not a holder in due course. In short, the purchaser of a manager's check
may validly countermand payment to a holder who is not a holder in due course. Accordingly, the drawee
bank may refuse to pay the manager's check by interposing a personal defense of the purchaser.

FACTS:

Respondent Noel M. Odrada (Odrada) sold a secondhand Mitsubishi Montero (Montero) to Teodoro L.
Lim (Lim). Of the total consideration, Six. Hundred Ten Thousand Pesos (P610,000) was initially paid by
Lim and the balance of Nine Hundred Thousand Pesos (P900,000) was financed by petitioner RCBC
Savings Bank (RCBC) through a car loan obtained by Lim.

RCBC issued two manager's checks dated 12 April 2002 payable to Odrada. After the issuance of the
manager's checks and their turnover to Odrada but prior to the checks' presentation, Lim notified Odrada
in a letter dated 15 April 2002 that there was an issue regarding the roadworthiness of the Montero.
Despite the notice, Odrada deposited the manager's checks with International Exchange Bank (Ibank) on
16 April 2002 and redeposited them on 19 April 2002 but the checks were dishonored both times
apparently upon Lim's instruction to RCBC. Consequently, Odrada filed a collection suit9 against Lim and
RCBC in the Regional Trial Court of Makati. In his Answer, Lim alleged that the cancellation of the loan
was at his instance, upon discovery of the misrepresentations by Odrada about the Montero 's
roadworthiness. On the other hand, RCBC contended that the manager's checks were dishonored
because Lim had cancelled the loan.

Both RTC and CA ruled in favor of Odrada and ordered RCBC to pay the amount of check. CA reasoned
that the effective delivery of the manager’s checks to Odrada made RCBC liable for the checks.
Furthermore, the Court of Appeals affirmed the finding of the trial court that Odrada was a holder in due
course. The appellate court ruled that the defense of want of consideration because of the defective
Montero delivered, as alleged by Lim and RCBC, is not available against a holder in due course.

ISSUES:

1. Whether or not Odrada is a holder in due course.

2. Whether or not RCBC correctly reused the payment of manager’s checks.

RULING:

1. Odrada is not a holder in due course.

To be a holder in due course, Section 52 of the Negotiable Instruments Law requires that a party must
have acquired the instrument in good faith and/or value. Good faith means that the person taking the
instrument has acted with due honesty with regard to the rights of the parties liable on the instrument and
that at the time he took the instrument, the holder has no knowledge of any defect or infirmity of the
instrument. acquired the instrument in good faith and/or value. Value, on the other hand, is defined as any
consideration sufficient to support a simple contract.

In the present case, Odrada attempted to deposit the manager's checks on 16 April 2002, a day after Lim
had informed him that there was a serious problem with the Montero. Instead of addressing the issue,
Odrada decided to deposit the manager's checks. Odrada's actions do not amount to good faith. Clearly,
Odrada failed to make an inquiry even when the circumstances strongly indicated that there arose, at the
very least, a partial failure of consideration due to the hidden defects of the Montero. Odrada's action in
depositing the manager's checks despite knowledge of the Montero's defects amounted to bad faith.
Moreover, when Odrada redeposited the manager's checks on 19 April 2002, he was already formally
notified by RCBC the previous day of the cancellation of Lim's auto loan transaction.

2. RCBC correctly refused the payment of the manager’s checks.

Jurisprudence defines a manager's check as a check drawn by the bank's manager upon the bank itself
and accepted in advance by the bank by the act of its issuance. Consequently, upon its purchase, the
check becomes the primary obligation of the bank and constitutes its written promise to pay the holder
upon demand.

As a general rule, the drawee bank is not liable until it accepts. Accordingly, acceptance is the act which
triggers the operation of the liabilities of the drawee (acceptor) under Section 62 of the Negotiable
Instruments Law. However, as can be gleaned in a long line of cases decided by this Court, a manager's
check is accepted by the bank upon its issuance. As compared to an ordinary bill of exchange where
acceptance occurs after the bill is presented to the drawee, the distinct feature of a manager's check is
that it is accepted in advance. Notably, the mere issuance of a manager's check creates a privity of
contract between the holder and the drawee bank, the latter primarily binding itself to pay according to the
tenor of its acceptance. The drawee bank, as a result, has the unconditional obligation to pay a
manager's check to a holder in due course irrespective of any available personal defenses. However,
while this Court has consistently held that a manager's check is automatically accepted, a holder other
than a holder in due course is still subject to defenses.

The Supreme Court ruled that the drawee bank of a manager's check may interpose personal defenses of
the purchaser of the manager's check if the holder is not a holder in due course. In short, the purchaser of
a manager's check may validly countermand payment to a holder who is not a holder in due course.
Accordingly, the drawee bank may refuse to pay the manager's check by interposing a personal defense
of the purchaser.

Having established that Odrada is not a holder in due course, RCBC may refuse payment by interposing
a personal defense of Lim - that the title of Odrada had become defective when there arose a partial
failure or lack of consideration.

RCBC acted in good faith in following the instructions of Lim. The records show that Lim notified RCBC of
the defective condition of the Montero before Odrada presented the manager's checks. Lim informed
RCBC of the hidden defects of the Montero including a misaligned engine, smashed condenser, crippled
bumper support, and defective transmission. RCBC also received a formal notice of cancellation of the
auto loan from Lim and this prompted RCBC to cancel the manager's checks since the auto loan was the
consideration for issuing the manager's checks. RCBC acted in good faith in stopping the payment of the
manager's checks.

Section 58 of the Negotiable Instruments Law provides: "In the hands of any holder other than a holder in
due course, a negotiable instrument is subject to the same defenses as if it were nonnegotiable. x x x."
Since Odrada was not a holder in due course, the instrument becomes subject to personal defenses
under the Negotiable Instruments Law. Hence, RCBC may legally act on a countermand by Lim, the
purchaser of the manager's checks.

2) Metrobank vs Chiok

3) PNB vs Quimpo

On July 3, 1973, Francisco S. Gozon II, who was a depositor of the Caloocan City Branch of the
Philippine National Bank, went to the bank in his car accompanied by his friend Ernesto Santos whom he
left in the car while he transacted business in the bank. When Santos saw that Gozon left his check book
he took a check therefrom, filled it up for the amount of P5,000.00, forged the signature of Gozon, and
thereafter he encashed the check in the bank on the same day. The account of Gozon was debited the
said amount. Upon receipt of the statement of account from the bank, Gozon asked that the said amount
of P5,000.00 should be returned to his account as his signature on the check was forged but the bank
refused.

The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or the depositor
on the check being encashed. 1 It is expected to use reasonable business prudence in accepting and
cashing a check presented to it.

In this case the findings of facts of the court a quo are conclusive. The trial court found that a comparison
of the signature on the forged check and the sample signatures of private respondent show marked
differences as the graceful lines in the sample signature which is completely different from those of the
signature on the forged check. Indeed the NBI handwriting expert Estelita Santiago Agnes whom the trial
court considered to be an "unbiased scientific expert" indicated the marked differences between the
signature of private respondent on the sample signatures and the questioned signature. Notwithstanding
the testimony of Col. Fernandez, witness for petitioner, advancing the opinion that the questioned
signature appears to be genuine, the trial court by merely examining the pictorial report presented by said
witness, found a marked difference in the second "c" in Francisco as written on the questioned signature
as compared to the sample signatures, and the separation between the "s" and the "c" in the questioned
signature while they are connected in the sample signatures.

Obviously, petitioner was negligent in encashing said forged check without carefully examining the
signature which shows marked variation from the genuine signature of private respondent.
In reference to the allegation of the petitioner that it is the negligence of private respondent that is the
cause of the loss which he suffered, the trial court held:

The act of plaintiff in leaving his checkbook in the car while he went out for a short while can not
be considered negligence sufficient to excuse the defendant bank from its own negligence. It
should be home in mind that when defendant left his car, Ernesto Santos, a long time classmate
and friend remained in the same. Defendant could not have been expected to know that the said
Ernesto Santos would remove a check from his checkbook. Defendant had trust in his classmate
and friend. He had no reason to suspect that the latter would breach that trust .

We agree.
Private respondent trustee Ernesto Santos as a classmate and a friend. He brought him along in his car
to the bank and he left his personal belongings in the car. Santos however removed and stole a check
from his cheek book without the knowledge and consent of private respondent. No doubt private
respondent cannot be considered negligent under the circumstances of the case.

4) ASSOCIATED BANK V. CA

FACTS:
The province of Tarlac maintains an account with PNB-Tarlac. Part of its funds is appropriated
for the benefit of Concepcion Emergency Hospital. During a post-audit done by the province, it was
found out that 30 of its checks weren’t received by the hospital. Upon further investigation, it was found
out that the checks were encashed by Pangilinan who was a former cashier and administrative
officer of the hospital through forged indorsements. This prompted the provincial treasurer
to ask for
reimbursement from PNB and thereafter, PNB from Associated Bank. As the two banks didn't want
to reimburse, an action was filed against them.

HELD:
There is a distinction on forged indorsements with regard bearer instruments and instruments
payable to order.
With instruments payable to bearer, the signature of the payee or holder is unnecessary to pass title to
the instrument. Hence, when the indorsement is a forgery, only the person whose signature is
forged can raise the defense of forgery against holder in due course.

In instruments payable to order, the signature of the rightful holder is essential to transfer title to
the same instrument. When the holder’s signature is forged, all parties prior to the forgery may
raise the real defense of forgery against all parties subsequent thereto. In connection to this, an
indorser warrants that the instrument is genuine. A collecting bank is such an indorser. So
even if the indorsement is forged, the collecting bank is bound by his warranties as an indorser and
cannot set up
the defense of forgery as against the drawee bank.

Furthermore, in cases involving checks with forged indorsements, such as the case at bar, the chain
of liability doesn't end with the drawee bank. The drawee bank may not debit the account of
the drawer but may generally pass liability back through the collection chain to the party who took
from the forger and of course, the forger himself, if available. In other words, the drawee bank
can seek reimbursement or a return of the amount it paid from the collecting bank or person. The
collecting bank generally suffers the loss because it has te duty to ascertain the genuineness of
all prior endorsements considering that the act of presenting the check for payment to the
drawee is an assertion that the party making the presentment has done its duty to ascertain the
genuineness of the indorsements.

With regard the issue of delay, a delay in informing the bank of the forgery, which deprives it of
the opportunity to go after the forger, signifies negligence on the part of the drawee bank and will
preclude it from claiming reimbursement. In this case, PNB wasn't guilty of any negligent delay. Its
delay hasn't prejudiced Associated Bank in any way because even if there wasn't delay, the fact
that there was nothing left of the account of Pangilinan, there couldn't be anymore reimbursement.