INDORSEMENT

Development Bank of Rizal vs. Sima Wei

METROPOL V. SAMBOK MOTORS CO.

120 SCRA 864

FACTS:

Dr. Villareal issued a promissory note in favor of Sambok, which was payable in monthly
installments. The promissory note was then indorsed
to Metropol. Villareal defaulted payment and this prompted Metropol to
run after Sampol. Sampol alleged that it is not liable since it was a qualified indorser through the
wordings it inserted in its indorsement—with recourse.

HELD:

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. 3 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.
4 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.

GEMPESAW V. CA

218 SCRA 682

FACTS:

Gempensaw was the owner of many grocery stores. She paid her suppliers through the issuance of
checks drawn against her checking account with respondent bank. The checks were prepared by
her bookkeeper Galang. In the signing of the checks prepared by Galang, Gempensaw didn't bother

herself in verifying to whom the checks were being paid and if the issuances were necessary.
She didn't even verify the returned checks of the bank when the latter notifies her of the same. During
her two years in business, there were incidents shown that the amounts paid for were in excess of
what should have been paid. It was also shown that even if the checks were crossed, the intended payees
didn't receive the amount of the checks. This prompted Gempensaw to demand the bank to credit
her account for the amount of the forged checks. The bank refused to do so and this prompted her to file
the case against the bank.

HELD:

Forgery is a real defense by the party whose signature was forged. A party whose signature was forged
was never a party and never gave his consent to the instrument. Since his signature doesn’t appear
in the instrument, the same cannot be enforced against him even by a holder in due course. The drawee
bank cannot charge the account of the drawer whose signature was forged because he never gave the
bank the order to pay.

In the case at bar the checks were filled up by petitioner’s employee Galang and were later given
to her for signature. Her signing the checks made the negotiable instruments complete. Prior to signing of
the checks, there was no valid contract yet. Petitioner completed the checks by signing them and
thereafter authorized Galang to deliver the same to their respective payees. The checks were then
indorsed, forged indorsements thereon.

As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot debit
the account of a drawer for the amount of said check. An exception to this rule is when the
drawer is guilty of negligence which causes the bank to honor such checks. Petitioner in this case has
relied solely on the honesty and loyalty of her bookkeeper and never bothered to verify the accuracy
of the amounts of the checks she signed the invoices attached thereto. And though she received
her bank statements, she didn't carefully examine the same to double-check her

payments. Petitioner didn't exercise reasonable diligence which eventually led to the fruition of her
bookkeeper’s fraudulent schemes.

VIOLAGO VS. BF FINANCE CORPORATION

G.R. No. 158262 July 21, 2008

FACTS: Sometime in 1983, Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered
to sell a car to his cousin, Pedro F. Violago, and the latters wife, Florencia. Avelino explained that he needed
to sell a vehicle to increase the sales quota of VMSC, and that the spouses would just have to pay a down
payment of PhP 60,500 while the balance would be financed by respondent BA Finance. On August 4,
1983, the spouses and Avelino signed a promissory note under which they bound themselves to pay jointly
and severally to the order of VMSC the amount of PhP 209,601 in 36 monthly installments of PhP 5,822.25
a month, the first installment to be due and payable on September 16, 1983. Avelino prepared a Disclosure
Statement of Loan/Credit Transportation which showed the net purchase price of the vehicle, down
payment, balance, and finance charges. The sales invoice was filed with the Land Transportation Office
(LTO)-Baliwag Branch, which issued Certificate of Registration No. 0137032 in the name of Pedro on
August 8, 1983. The spouses were unaware that the same car had already been sold in 1982 to Esmeraldo
Violago, another cousin of Avelino, and registered in Esmeraldos name by the LTO-San Rafael Branch.
Despite the spouses demand for the car and Avelinos repeated assurances, there was no delivery of the
vehicle. Since VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA Finance.
On March 1, 1984, BA Finance filed with the Regional Trial Court (RTC), Branch 116 in Pasay City a
complaint for Replevin with Damages against the spouses.prayed for the delivery of the vehicle in favor of
BA Finance or, if delivery cannot be effected, for the payment of PhP 199,049.41 plus penalty at the rate
of 3% per month from February 15, 1984 until fully paid.

On August 21, 1989, the spouses Violago filed a Motion for Reconsideration and Motion to Quash Writ of
Execution on the basis of lack of a valid service of summons on them, among other reasons. The RTC
denied the motions; hence, the spouses filed a petition for certiorari under Rule 65 before the CA, docketed
as CA G.R. No. 2002-SP. On May 31, 1991, the CA nullified the RTCs order. This CA decision became
final and executory.

On January 28, 1992, the spouses filed their Answer before the RTC. The RTC rendered a Decision on
March 5, 1994, finding for BA Finance but against the Violago spouses. The RTC, however, declared that
they are entitled to be indemnified by Avelino. Petitioners-spouses and Avelino appealed to the CA. The
appellate court ruled that the promissory note was a negotiable instrument and that BA Finance was a
holder in due course, applying Secs. 8, 24, and 52 of the NIL. The spouses Violago sought but were denied
reconsideration by the CA per its Resolution of May 15, 2003.

ISSUE : 1) WHETHER OR NOT THE HOLDER OF AN INVALID NEGOTIABLE PROMISSORY NOTE

MAY BE CONSIDERED A HOLDER IN DUE COURSE

2) WHETHER OR NOT THE VEIL OF CORPORATE ENTITY MAY BE INVOKED AND SUSTAINED
DESPITE THE FRAUD AND DECEPTION OF AVELINO

HELD : 1) In this case, the CA is correct in finding that BA Finance meets all the foregoing requisites:

In the present recourse, on its face, (a) the Promissory Note, Exhibit A, is complete and regular; (b) the
Promissory Note was endorsed by the VMSC in favor of the Appellee; (c) the Appellee, when it accepted
the Note, acted in good faith and for value; (d) the Appellee was never informed, before and at the time the
Promissory Note was endorsed to the Appellee, that the vehicle sold to the Defendants-Appellants was not
delivered to the latter and that VMSC had already previously sold the vehicle to Esmeraldo Violago. The
indorsement by VMSC to BA Finance appears likewise to be valid and regular. In the hands of one other
than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-
negotiable.A holder in due course, however, holds the instrument free from any defect of title of prior parties
and from defenses available to prior parties among themselves, and may enforce payment of the instrument
for the full amount thereof. Since BA Finance is a holder in due course, petitioners cannot raise the defense
of non-delivery of the object and nullity of the sale against the corporation. The NIL considers every
negotiable instrument prima facie to have been issued for a valuable consideration. Thus, petitioners are
liable to respondent corporation for the payment of the amount stated in the instrument.

2) VMSC is a family-owned corporation of which Avelino was president. Avelino committed fraud in selling
the vehicle to petitioners, a vehicle that was previously sold to Avelinos other cousin, Esmeraldo. Nowhere
in the pleadings did Avelino refute the fact that the vehicle in this case was already previously sold to
Esmeraldo; he merely insisted that he cannot be held liable because he was not a party to the transaction.
The fact that Avelino and Pedro are cousins, and that Avelino claimed to have a need to increase the sales
quota, was likely among the factors which motivated the spouses to buy the car. Avelino, knowing fully well
that the vehicle was already sold, and with abuse of his relationship with the spouses, still proceeded with
the sale and collected the down payment from petitioners. The trial court found that the vehicle was not
delivered to the spouses. Avelino clearly defrauded petitioners. His actions were the proximate cause of
petitioners loss. He cannot now hide behind the separate corporate personality of VMSC to escape from
liability for the amount adjudged by the trial court in favor of petitioners.

San Miguel vs. Bartolome ???

HOLDER

Negotiable Instruments Case Digest: Vicente R. De Ocampo V. Gatchalian (1961)

FACTS:

Sept 8 1953 evening: Anita C. Gatchalian was looking for a car for the use of her husband and the family
and Manuel Gonzales who was accompanied by Emil Fajardois (personally known to Anita) offered her a
car

Manuel Gonzales represented to defendant Anita that he was duly authorized by Ocampo Clinic, the owner
of the car, to look for a buyer and negotiate for and accomplish the sale, but which facts were not known to
Ocampo

September 9 1953 : Anita requested Manuel to bring the car the day following together with the certificate
of registration of the car so that her husband would be able to see same

Manuel Gonzales told her that unless there is a showing that the party interested in the purchase is ready
he cannot bring the certificate of registration

Anita gave him a check which will be shown to the owner as evidence of buyer's GF in the intention to
purchase, it being for safekeeping only of Manuel and to be returned

For the hospitalization of the wife of Manuel, he paid the check to Ocampo clinic

P441.75 - payment of said fees and expenses

P158.25 -given to Manual as balance

Next Day: Manual did not appear so Anita issued a stop payment order. Anita filed with the Office of the
City Fiscal of Manila, a complaint for estafa against Manuel. Appeal Manuel contends that: the check is not
a negotiable instrument, under the facts and circumstances stated in the stipulation of facts - no delivery
(Section 16, Negotiable Instruments Law) because only for safekeeping (conditional delivery)

Ocampo is not a holder in due course, no negotiation prior to acquiring the check, check is not a personal
check of Manuel could have inquired why a person would use the check of another to pay his own debt,
Gatchalian being personally acquainted with V. R. de Ocampo

ISSUES:

W/N Ocampo is a holder in due course - NO

W/N prima facie holder in due course applies - NO

HELD:

NO

Sec. 191

holder - payee or indorsee of a bill or note, who is in possession of it, or the bearer

Sec. 52

holder in due course - holder who has taken the instrument under the ff conditions:

That it is complete and regular on its face

That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, it such was the fact.

That he took it in good faith and for value.

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 circumstances

the amount of the check did not correspond exactly with the obligation of Matilde Gonzales to Dr. V. R. de
Ocampo check had two parallel lines in the upper left hand corner, which practice means that the check
could only be deposited but may not be converted into cash

It was payee's duty to ascertain from the holder Manuel what the nature of his title to the check was or the
nature of his possession. - failure: guilty of gross neglect and legal absence of GF

In order to show that the defendant had 'knowledge of such facts that his action in taking the instrument
amounted to BF it is not necessary to prove that the defendant knew the exact fraud

It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with
fraud
 2. NO

Sec. 59

every holder is deemed prima facie to be a holder in due course

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

YANG V. COURT OF APPEALS

409 SCRA 159

FACTS:

Yang and Chandimari entered into an agreement that the latter would issue to the former a manager’s
check in exchange for two checks that Yang has payable to the order of David. The difference in
amount would be the profit of the two of them. It was further agreed upon that Yang would

secure a dollar draft, which Chandimari would exchange with another dollar draft to be secured from a
Hong Kong bank. At the agreed time of rendezvous, it was reported by Yang’s messenger that
Chandimari didn't show up and the drafts and checks were allegedly stolen. This wasn't true however.
Chandimari was able to get hold of the drafts and checks. He was even able to deliver to David the
two checks and was able to get money in return. Consequently, Yang asked for the stoppage of
payment of the checks she believe to be lost, relying on the report of her messenger. The stoppage
order was eventually lifted by the banks and the drafts and checks were able to be encashed. Yang then
filed an action for injunction and damages against the banks, Chandimari and David. The

trial court and CA held in favor of David as a holder in due course.

HELD:

Every holder of a negotiable instrument is presumed to be a holder in due course. This is specially true if
one is a holder because he is the payee or indorsee of the instrument. In the case at bar, it is evident that
David was the payee of the checks. The prima facie presumption of him being a holder in due
course is in his favor. Nonetheless, this presumption is disputable. On whether he took the check
under the conditions set forth in Section 52 must be proven. Petitioner relies on two arguments on
why

David isn’t a holder in due course—first, because he took the checks without valuable consideration;
and second, he failed to inquire on Chandimari’s title to the checks given to him.

The law gives rise to the presumption of valuable consideration. Petitioner has the burden of debunking
such presumption, which it failed to do so. Her allegation that David received the checks without
consideration is unsupported and devoid of any evidence.

Furthermore, petitioner wasn't able to show any circumstance which should have placed David in inquiry
as to why and wherefore of the possession of the checks by Chandimari. David wasn't a privy to the
transactions between Yang and Chandimari. Instead, Chandimari and David had the agreement
between themselves of the delivery of the checks. David even inquired with the banks on the genuineness
of the checks in issue. At that time, he wasn't aware of any request for the stoppage of payment. Under

these circumstances, David had no obligation to ascertain from Chandimari what the nature of the latter’s
title to the checks was, if any, or the nature of his possession.
RCBC SAVINGS BANK v. NOEL M. ODRADA, GR No. 219037, 2016-10-19

Facts:

respondent Noel M. Odrada (Odrada) sold a second-hand Mitsubishi Montero (Montero) to Teodoro L. Lim
(Lim) for One Million Five Hundred Ten Thousand Pesos (P1,510,000)

(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

RCBC required Lim to submit the original copies of the Certificate of Registration (CR) and Official Receipt
(OR) in his name. Unable to produce the Montero's OR and CR, Lim requested RCBC to execute a letter
addressed to Odrada informing the latter that his application for a car loan had been approved.

Odrada executed a Deed of Absolute Sale on 9 April 2002 in favor of Lim and the latter took possession of
the Montero.

When RCBC received the documents, RCBC issued two manager's checks... for Nine Hundred Thousand
Pesos (P900,000) and Thirteen Thousand Five Hundred Pesos (P13,500).

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.

when you open its engine cover there is a trace of a head-on collision

The 4-wheel drive shift is not functioning.

the odometer has still an original mileage data but found tampered.

represented the vehicle as model 1998 however; it is indicated in the front left A-pillar inscribed at the
identification plate [as] model 1997.

please show your sincerity by personally inspecting the said vehicle at RCBC, Pacific Bldg. Pearl Drive,
Ortigas Center, Pasig City.

Odrada... drada did not go to the slated meeting and instead deposited the manager's checks... checks
were dishonored both times apparently upon Lim's instruction to RCBC.

Odrada filed a collection suit[9] against Lim and RCBC

Lim claimed that the cancellation was not done ex parte but through a letter[... the letter was delivered to
Odrada prior to the presentation of the manager's checks to RCBC.

RCBC contended that the manager's checks were dishonored because Lim had cancelled the loan.

prior to the presentation of the manager's checks.

RCBC also sent a formal notice of cancellation of the loan on 18 April 2002 to both Odrada and Lim.

trial court ruled in favor of Odrada.

Odrada was the proper party to ask for rescission.

the right of rescission is implied in reciprocal obligations where one party fails to perform what is incumbent
upon him when the other is willing and ready to comply.

it was not proper for Lim to exercise the right of rescission since Odrada had already complied with the
contract of sale by delivering the Montero while Lim remained delinquent in payment.
the defective condition of the Montero was not a supervening event that would justify the dishonor of the
manager's checks.

a manager's check is equivalent to cash and is really the bank's own check. It may be treated as a
promissory note with the bank as maker.

constitutes a written promise to pay on demand.

Being the party primarily liable, the trial court ruled that RCBC was liable to Odrada for the value of the
manager's checks.

Court of Appeals dismissed the appeal... when RCBC issued the manager's checks in favor of Odrada,
RCBC admitted the existence of the payee and his then capacity to endorse, and undertook that on due
presentment the checks which were negotiable instruments would be accepted or paid, or both according
to its tenor.

RCBC alone[28] filed this petition before the Court. Thus, the decision of the Court of Appeals became final
and executory as to Lim.

Issues:

Whether or not the court a quo erred in holding that Lim cannot cancel the auto loan despite the failure in
consideration due to the contested roadworthiness of the vehicle delivered by Odrada to him.

Whether or not Lim can validly countermand the manager's checks in the hands of a holder who does not
hold the same in due course.

Ruling:

We grant the petition.

Principles:

a contract of sale is perfected the moment there is a meeting of the minds upon the thing which is the object
of the contract and upon the price which is the consideration. From that moment, the parties may
reciprocally demand performance.

However, the obligations between the parties do not cease upon delivery of the subject matter. The vendor
and vendee remain concurrently bound by specific obligations. The vendor, in particular, is responsible for
an implied warranty against hidden defects.

Article 1547 of the Civil Code... e states: "In a contract of sale, unless a contrary intention appears, there is
an implied warranty that the thing shall be free from any hidden faults or defects."

Article 1566 of the Civil Code provides that "the vendor is responsible to the vendee for any hidden faults
or defects in the thing sold, even though he was not aware thereof."... under the law, Odrada's warranties
against hidden defects continued even after the Montero's delivery. Consequently, a misrepresentation as
to the Montero's roadworthiness constitutes a breach of warranty against hidden defects.

Supercars Management & Development Corporation v. Flores... a breach of warranty against hidden
defects occurred when the vehicle, after it was delivered to respondent, malfunctioned despite repairs by
petitioner.

when Lim acquired possession, he discovered that the Montero was not roadworthy.
However, during the proceedings in the trial court, Lim's testimony was stricken off the record because he
failed to appear during cross-examination.

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.

It is really the bank's own check and may be treated as a promissory note with the bank as its maker.

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.

Prior to a bill's acceptance, no contractual relation exists between the holder... and the drawee.

Acceptance,... creates a privity of contract between the holder and the drawee so much so that the latter,
once it accepts, becomes the party primarily liable on the instrument.

acceptance is the act which triggers the operation of the liabilities of the drawee (acceptor) under Section
62... of the Negotiable Instruments Law... once he accepts, the drawee admits the following: (a) existence
of the drawer; (b) genuineness of the drawer's signature; (c) capacity and authority of the drawer to draw
the instrument; and (d) existence of the payee and his then capacity to endorse.

a manager's check is accepted by the bank upon its issuance.

the distinct feature of a manager's check is that it is accepted in advance.

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 mere issuance of a manager's check does not ipso facto work as an automatic transfer of funds to the
account of the payee.

In order for the holder to acquire title to the instrument, there still must have been effective delivery.

the doctrine that the deposit represented by a manager's check automatically passes to the payee is
inapplicable, because the instrument - although accepted in advance remains undelivered."[57]... if the
holder of a manager's check is not a holder in due course, can the drawee bank interpose a personal
defense of the purchaser?

"the holder of a cashier's check who is not a holder in due course cannot enforce such check against the
issuing bank which dishonors the same."[64]... 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. Hence, the
resolution of the present case requires a determination of the status of Odrada as holder of the manager's
checks.

the Court of Appeals gravely erred when it considered Odrada as a holder in due course. Section 52 of the
Negotiable Instruments Law defines a holder in due course as one 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 has been previously dishonored, if such was the fact;(c)T
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.

To be a holder in due course, the law requires that a party must have acquired the instrument in good faith
and for 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

To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same,
the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge
of such facts that his action in taking the instrument would amount to bad faith.

Value, on the other hand, is defined as any consideration sufficient to support a simple contract.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.

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.

CBC 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.

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 non-negotiable, x x x."
Since Odrada was not a holder in due course, the instrument becomes subject to personal defenses under
the Negotiable Instruments Law.