Go vs Metrobank (2010)

G.R. No. 168842

SECOND DIVISION
NACHURA, J.:

Go is doing business under the name Hope Pharmacy. Go employed Chua as his
pharmacist and Tabaag as a person who is in charge take care of the receipts and
invoices. Tabaago also assist Chua in making deposit in Go's accounts in the
business operations of Hope Pharmacy.

Go obtained a loan from the parents of Chua. The latter was given discretion by
Go to transfer money from the offices of Hope Pharmacy to pay the advances and
other obligations of the drugstore. As Go failed to pay his obligation, Chua's
parents issued 32 crossed checks and named Go as a payee. These checks were
given to Chua as payments by Go for loans obtained from the parents of Chua.

Chua presented the crossed checks to Metrobank who accepted the same.

Learning this, Go sued Chua and Tabaag for sum of money with preliminary
attachment. The court however, dismissed the complaint.

Meanwhile, Go also sued Metrobank and Chua for sum of money with damages.
The bank countered that Go is not entitled to reimbursement because he did not
sustain damage from such transaction.
The trial court agreed that Go is not entitled to sum of money but hold the bank
liable for damages.
Upon appeal before the CA, the court affirmed the ruling of the lower court.
Go then appear before the SC and alleged that Metrobank is liable to pay the
whole amount in the checks to him.

Issue:
WON Metrobank is liable for allowing the deposit, of the cross checks
which were issued in favor of and payable to Go and without being
indorsed by Go, to the account of Maria Teresa Chua.
Ruling: No.
Respondent bank should not be held liable for the entire amount of the checks
considering that, as found by the RTC and affirmed by the CA, the checks were
actually given to Chua as payments by petitioner for loans obtained from the
parents of Chua.
Furthermore, petitioners non-inclusion of Chua and Tabaag in the petition before
this Court is, in effect, an admission by the petitioner that Chua, in
representation of her parents, had rightful claim to the proceeds of the checks,
as payments by petitioner for money he borrowed from the parents of Chua.
Therefore, petitioner suffered no pecuniary loss in the deposit of the checks to
the account of Chua.

Sub Issue: WON the bank is liable for damages.

Ruling: Yes.

Xxx, we affirm the finding of the RTC that respondent bank was negligent in
permitting the deposit and encashment of the crossed checks without the
proper indorsement.

Negligence was committed by respondent bank in accepting for deposit the

crossed checks without indorsement and in not verifying the authenticity of the
negotiation of the checks. The law imposes a duty of extraordinary diligence on
the collecting bank to scrutinize checks deposited with it, for the purpose of
determining their genuineness and regularity. As a business affected with public
interest and because of the nature of its functions, the banks are under obligation
to treat the accounts of its depositors with meticulous care, always having in mind
the fiduciary nature of the relationship.

The fact that this arrangement had been practiced for three years without Mr.
Go/Hope Pharmacy raising any objection does not detract from the duty of the
bank to exercise extraordinary diligence.

Thus, the Decision of the RTC, as affirmed by the CA, holding respondent bank
liable for moral damages is sufficient to remind it of its responsibility to exercise
extraordinary diligence in the course of its business which is imbued with public
interest.
Note:

 A check is a bill of exchange drawn on a bank payable on demand. There

are different kinds of checks. In this case, crossed checks are the subject of
the controversy.
 A crossed check is one where two parallel lines are drawn across its face or
across the corner thereof. It may be crossed generally or specially.

 A check is crossed specially when the name of a particular banker or a

company is written between the parallel lines drawn.
 It is crossed generally when only the words "and company" are written or
nothing is written at all between the parallel lines, as in this case.

 It may be issued so that presentment can be made only by a bank.[19]

 In order to preserve the credit worthiness of checks, jurisprudence has

pronounced that crossing of a check has the following effects:
(a) the check may not be encashed but only deposited in the bank;
(b) the check may be negotiated only once to one who has an
account with a bank; and
(c) the act of crossing the check serves as warning to the holder that
the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course.

 The Court has taken judicial cognizance of the practice that a check with
two parallel lines in the upper left hand corner means that it could only
be deposited and not converted into cash.
 The effect of crossing a check, thus, relates to the mode of payment,
meaning that the drawer had intended the check for deposit only by the
rightful person, i.e., the payee named therein. The crossing of a check is a
warning that the check should be deposited only in the account of the
payee.
  Thus, it is the duty of the collecting bank to ascertain that the check be
deposited to the payees account only.
 An indorsement is necessary for the proper negotiation of checks specially
if the payee named therein or holder thereof is not the one depositing or
encashing it.
 Knowing fully well that the subject checks were crossed, that the payee was
not the holder and that the checks contained no indorsement, respondent
bank should have taken reasonable steps in order to determine the
validity of the representations made by Chua. Respondent bank was amiss
in its duty as an agent of the payee. Prudence dictates that respondent
bank should not have merely relied on the assurances given by Chua.

BPI vs Roxas (2007)

G.R. No. 157833
FIRST DIVISION
SANDOVAL-GUTIERREZ, J.:

Roxas, a trader, received from Cawilis cashiers check which was drawn against the
latter's account and payable to Roxas. This check was given as payment for the
vegetable oil Roxas delivered to Cawilis.
The following day, Roxas tried to encash the cashiers check but it was dishonored
for the reason "closed account."
Roxas filed a complaint for a sum of money with damages against BPI.
BPI claims that Roxas is not a holder in due course because no consideration was
given to BPI when Cawilis purchased the check.
Issue: WON BPI is a holder in due course.
Ruling: Yes.
Xxx [T]here is no dispute that Roxas received Cawilis cashiers check as payment
for the formers vegetable oil. The fact that it was Cawili who purchased the
cashiers check from BPI will not affect Roxas status as a holder for value since
the check was delivered to him as payment for the vegetable oil he sold to
spouses Cawili.
Xxx [Moreover], under Section 52 of the Negotiable Instruments Law, every
holder is presumed prima facie to be a holder in due course. One who claims
otherwise has the onus probandi to prove that one or more of the conditions
required to constitute a holder in due course are lacking.

Issue: WON BPI is liable to Roxas for the amount of cashiers check.
Ruling: Yes.
In view of International Corporate Bank v. Spouses Gueco case, BPI became liable
to Roxas from the moment it issued the cashiers check. Having been accepted by
Roxas, subject to no condition whatsoever, BPI should have paid the same upon
presentment by the former.
Note:

 SEC. 52. What constitutes a holder in due course. 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 person
negotiating it.

 In International Corporate Bank v. Spouses Gueco,[3] this Court held that a

cashiers check is really the banks own check and may be treated as a
promissory note with the bank as the maker. The check becomes
the primary obligation of the bank which issues it and constitutes a
written promise to pay upon demand.
  In International Corporate Bank v. Spouses Gueco,[4] this Court took judicial
notice of the well-known and accepted practice in the business sector that
a cashiers check is deemed as cash. This is because the mere issuance of a
cashiers check is considered acceptance thereof.

State Investment House vs IAC, Anita Chua and Harris Chua (1989)

G.R. No. 72764

THIRD DIVISION

FERNAN, C.J.:

NSWI, Inc. entered into a contract of loan with Harris. Anita, Harris wife, issued
three crossed checks payable to NSWI, Inc.

Subsequently, NSWI, Inc. sold (assigned and discounted with consideration) to

SIH eleven postdated checks including the checks issued by Anita.

When SIH presented the checks, it were dishonored by reason of "insufficient

funds", "stop payment" and "account closed"

SIH sued Sps. Chua for collection of sum of money.

Sps Chua filed a third-party complaint against NSWI, Inc. The RTC ruled in favor of
SIH and declared NSWI, Inc. in default for failure to file an answer. IAC reversed
the ruling of the lower court.

Issue: WON SIH is a holder in due course; or WON Anita and Chua are liable to
SIH for the amount stated in the dishonored crossed checks.

Ruling: No.

Under Section 72 of the Negotiable Instruments Law, presentment for payment to

be sufficient must be made (a) by the holder, or by some person authorized to
receive payment on his behalf ... As to who the holder or authorized person will
be depends on the instructions stated on the face of the check.
The three subject checks in the case at bar had been crossed generally and issued
payable to New Sikatuna Wood Industries, Inc. which could only mean that the
drawer had intended the same for deposit only by the rightful person, i.e., the
payee named therein.

Apparently, it was not the NSWI, Inc. who presented the same for payment and
therefore, there was no proper presentment, and the liability did not attach to
the Sps. Chua.

Thus, in the absence of due presentment, the Sps. Chua did not become liable.

Consequently, no right of recourse is available to SIH against the Sps. Chua of

the subject checks, considering that SIH is not the proper party authorized to
make presentment of the checks in question.

Issue: WON SIH has a right of recourse against NSWI, Inc.

Ruling: Yes.

The Negotiable Instruments Law does not provide that a holder who is not a
holder in due course may not in any case recover on the instrument for in the
case at bar, SIH may recover from the New Sikatuna Wood Industries, Inc. if the
latter has no valid excuse for refusing payment.

The only disadvantage of a holder who is not in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable.

That the subject checks had been issued subject to the condition that private
respondents on due date would make the back up deposit for said checks but
which condition apparently was not made, thus resulting in the non-
consummation of the loan intended to be granted by Anita and Harris to New
Sikatuna Wood Industries, Inc., constitutes a good defense against SIH who is not
a holder in due course.

Note:

 Section 52(c) of the Negotiable Instruments Law defines a holder in due

course as one who takes the instrument "in good faith and for value".
  On the other hand, Section 52(d) provides 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 x x x defect in the title of the
person negotiating it."
 However, under Section 59 every holder is deemed prima facie to be a
holder in due course.
 The effect therefore of crossing a check relates to the mode of its
presentment for payment.

BCCFI vs CA and SIHI (1994)

G.R. No. 93048 March 3, 1994

SECOND DIVISION

NOCON, J.:

BCCFI, a corporation engaged in the business of manufacturing cigarettes,

ordered from George bales of tobacco leaf. In consideration thereof, BCCFI issued
three post-dated crossed checks payable to George. George sold the said checks
to SIHI. George, however, failed to deliver the said goods but promised BCCFI to
deliver it within three months. BCCFI, purchase additional bales of tobacco leaves
and issued crossed checks payable to George. Once again, George sold the checks
to SIHI. BCCFI demanded from George the delivery of the subject goods but the
latter failed to do so. BCCFI then ordered to stop payment on all checks payable
to George.

SIHI presented the checks but the checks were dishonored.

SIHI filed a collection of some of money against BCCFI on the three unpaid checks
the latter issued. The RTC ruled in favor of SIHI on the ground that SIHI is a holer
in due course. CA affirmed the ruling of RTC.

Issue: WON SIHI is a holder in due course; or WON BCCFI is liable to SIHI based
on the crossed checks payable to George.

Ruling: No.
It is xxx settled that crossing of checks should put the holder on inquiry and upon
him devolves the duty to ascertain the indorser's title to the check or the nature
of his possession. Failing in this respect, the holder is declared guilty of gross
negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of
the Negotiable Instruments Law, and as such the consensus of authority is to the
effect that the holder of the check is not a holder in due course.

In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is

to George. Because, really, the checks were issued with the intention that George
would supply BCCFI with the bales of tobacco leaf. There being failure of
consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be
obliged to pay the checks.

The foregoing does not mean, however, that respondent could not recover from
the checks. The only disadvantage of a holder who is not a holder in due course is
that the instrument is subject to defenses as if it were non-negotiable. Hence,
respondent can collect from the immediate indorser, in this case, George.

Notes:

 The Negotiable Instruments Law states what constitutes a holder in due

course, thus:

Sec. 52 — 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.
  Section 59 of the NIL further states that every holder is deemed prima
facie a holder in due course.
 However, when it is shown that the title of any person who has negotiated
the instrument was defective, the burden is on the holder to prove that he
or some person under whom he claims, acquired the title as holder in due
course.

In order to preserve the credit worthiness of checks, jurisprudence has

pronounced that crossing of a check should have the following effects: (a) the
check may not be encashed but only deposited in the bank; (b) the check may be
negotiated only once — to one who has an account with a bank; (c) and the act of
crossing the check serves as warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise, he is not a holder in due course.

V. R. de Ocampo vs Anita and Hipolito Gatchalian (1961)

G.R. No. L-15126

EN BANC

LABRADOR, J.:

Anita made an arrangement with Manuel to buy the car of Ocampo Clinic who
authorized Manuel to sell the said vehicle. Anita and Manuel agreed that the
former will issue a check payable to V. R. de Ocampo while the latter will show
the car and its certificate of registration to Anita. However, the purpose of the
issuance of the said check is only to show Ocampo Clinic that Anita is really
interested to buy the car. (Payable to V. R. de Ocampo but the owner is Ocampo
Clinic – hindi nilinaw sa case kung same lang si Ocampo Clinic at V. R. de Ocampo).
They also agreed that such check shall be returned to Anita on the same day
Manuel had shown the car to Anita. These facts were not known to V. R. de
Ocampo. Anita issued a check with two parallel lines in the upper left hand corner
payable to V. R. de Ocampo but Manuel failed to make good of his promise, hence
Anita ordered the drawee bank to “stop payment” on the check. Manuel used the
check to pay the hospitalization expenses of his wife to V. R. de Ocampo who
accepted it without inquiring Manuel his entitlement over the said check. V. R. de
Ocampo sued Manuel for estafa but the complaint was later on dropped. V. R. de
Ocampo then sued Anita and his husband Hipolito Gatchalian for the recovery of
the value of a check. The CFI held that Anita is liable to V. R. de Ocampo. Anita
Appealed to the CA who affirmed the decision of the lower court.

Issue: WON V. R. de Ocampo is a holder in due course.

Ruling: No.

Xxx the rule that a possessor of the instrument is prima faciea holder in due
course does not apply because there was a defect in the title of the holder
(Manuel), because the instrument is not payable to him or to bearer.

As Manuel title was defective or suspicious, it cannot be stated that the V. R. de

Ocampo acquired the check without knowledge of said defect in Manuel’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.

The burden was, therefore, placed upon it to show that notwithstanding the
suspicious circumstances, it acquired the check in actual good faith.

In the case at bar as the V. R. de Ocampo acquired the check under circumstances
which should have put it to inquiry (that the check has two parallel line), why the
holder had the check and used it to pay his own personal account, the duty
devolved upon it, V. R. de Ocampo, to prove that it actually acquired said check
in good faith.

Note:

 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;

(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.

 Let us now examine the express provisions of the Negotiable Instruments

Law pertinent to the matter to find if our ruling conforms thereto.
o Section 52 (c) provides that a holder in due course is one who takes
the instrument "in good faith and for value;"
o Section 59, "that every holder is deemed prima facie to be a holder in
due course;" and
o 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
o Section 59, that every holder is deemed prima facie to be a holder in
due course.