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G.R. No.

L-26767

February 22, 1968

Lessons Applicable: General Indorser (Negotiable Instrurments)


Laws Applicable: Section 63 of the Negotiable Instruments Law
FACTS:

August 15, 1960: Lorenzo Ting issued Philippine Bank of Communications check K81618, w/ sum of P4,000, payable to "cash or bearer"
o With Felipe Ang's signature (indorsement in blank) at the back thereof, the
instrument was received by the Ang Tiong who presented it to the drawee bank
for payment but it was dishonored
o Ting made a written demand to both Ting and Ang to no avail

March 6, 1962: Municipal Court of Manila favored Tiong against Ting and Ang

CA: ordered Ang to pay with interest

Ang contends that he is an accomodating indorser

ISSUE: W/N Ang is an accomodating indorser and not a general indorser a


HELD: NO. Affirmed

Section 63 of the Negotiable Instruments Law: a person placing his signature upon an
instrument otherwise than as maker, drawer or acceptor = a general indorser, unless he
clearly indicates plaintiff appropriate words his intention to be bound in some other
capacity
o warrants:

(a) that the instrument is genuine and in all respects what it purports to be;

(b) that he has a good title to it;

(c) that all prior parties have capacity to contract; and

(d) that the instrument is at the time of his indorsement valid and
subsisting

Even on the assumption that the appellant is a mere accommodation party, as he professes
to be, he is by the clear mandate of section 29 of the Negotiable Instruments Law, "liable

on the instrument to a holder for value, notwithstanding that such holder at the time of
taking the instrument knew him to be only an accommodation party."
o It is not a valid defense that the accommodation party did not receive any valuable
consideration when he executed the instrument.
o Nor is it correct to say that the holder for value is not a holder in due course
merely because at the time he acquired the instrument, he knew that the indorser
was only an accommodation party.

assuming him to be an accommodation indorser, may obtain security from the maker to
protect himself against the danger of insolvency of the latter, cannot in any manner affect
his liability to the Tiong, as the said remedy is a matter of concern exclusively between
accommodation indorser and accommodated party.
o The liability of the appellant remains primary and unconditional.

MBTC v. PBCOM (2007)

FACTS:

Pipe Master Corp (Pipe Master) represented by Yu Kio, its president, applied
for check discounting with Filipinas Orient Finance Corp (Filipinas Orient). The
latter approved and granted the same.
BoD of Pipe Master issued a Board Resolution authorizing Yu Kio, in his
capacity as president, and/or Tan Juan Lian, in his capacity as vice-president,
to execute, indorse, make, sign, deliver or negotiate instruments, documents
and such other papers necessary in connection with any transaction coursed
through Filipinas Orient for and in behalf of the corporation.
Tan Juan Lian then executed in favor of Filipinas Orient a continuing guaranty
that he shall pay at maturity any and all promissory notes, drafts, checks, or
other instruments or evidence of indebtedness for which Pipe Master may
become liable; that the extent of his liability shall not at any one time exceed
the sum of P1,000,000.00; and that in the event of default by Pipe Master,
Filipinas Orient may proceed directly against him.
Under the check discounting agreement between Pipe Master and Filipinas
Orient, Yu Kio sold to Filipinas Orient four MBTC checks amounting
to P1,000,000.00. In exchange for the four MBTC checks, Filipinas Orient
issued to Yu Kio four PBCom crossed checks totaling P964,303.62, payable to
Pipe Master with the statement for payees account only.
Upon his receipt of the four PBCom checks, Yu Kio indorsed and deposited in
the MBTC, in his personal account, three of the checks valued
at P721,596.95. As to the remaining check amounting to P242,706.67, he
deposited it in the Solid Bank Corp (Solid Bank), also in his personal
account. Eventually, PBCom paid MBTC and Solid Bank the amounts of the

checks. In turn, MBTC and Solid Bank credited the value of the checks to the
personal accounts of Yu Kio.
Subsequently, when Filipinas Orient presented the four MBTC checks
equivalent to P1,000,000.00 it received from Yu Kio, they were dishonored by
the drawee bank. Pipe Master, the drawer, refused to pay the amounts of the
checks, claiming that it never received the proceeds of the PBCom checks as
they were delivered and paid to the wrong party, Yu Kio, who was not the
named payee.
Filipinas Orient then demanded that PBCom restore to its (Orients) account
the value of the PBCom checks. In turn, PBCom sought reimbursement from
MBTC and Solid Bank, being the collecting banks, but they refused. Thus,
Filipinas Orient filed with the RTC, a complaint for a sum of money against
Pipe Master, Tan Juan Lian and/or PBCom.
RTC rendered a Decision against MBTC and Solid Bank.
CA affirmed in toto the Decision of the trial court. Hence, the instant
consolidated petitions filed by MBTC and Solid Bank.

ISSUE: WON Metro Bank and Solid Bank, petitioners, are liable to respondent
Filipinas Orient for accepting the PBCom crossed checks payable to Pipe Master

Petitioner banks contend that Pipe Master, Tan Juan Lian and/or PBCom should be
made liable to respondent Filipinas Orient for the value of the checks.

Pipe Master and Tan Juan Lian counter that although Yu Kio was expressly authorized
to indorse Pipe Masters checks, such authority extended only to acts done in the
ordinary course of business, not in his personal capacity. For its part, respondent
Filipinas Orient contends that petitioner banks were negligent in allowing Yu Kio to
deposit the PBCom checks in his account. Respondent PBCom, as the drawee bank,
maintains that it has no liability because in clearing the checks, it relied on the
express guarantee made by petitioner banks that the checks were validly indorsed.

DECISION: Petitions DENIED. Decision AFFIRMED.

HELD:

A check is defined by law as a bill of exchange drawn on a bank payable on


demand The NIL is silent with respect to crossed checks. Nonetheless, this
Court has taken judicial cognizance of the practice that a check with two
parallel lines on the upper left hand corner means that it could only be
deposited and not converted into cash. The crossing of a check with the

phrase Payees Account Only is a warning that the check should be


deposited in the account of the payee. It is the collecting bank which is
bound to scrutinize the check and to know its depositors before it can make
the clearing indorsement, all prior indorsements and/or lack of indorsement
guaranteed.
Here, petitioner banks have the obligation to ensure that the PBCom checks
were deposited in accordance with the instructions stated in the checks. The
four PBCom checks in question had been crossed and issued for payees
account only. This could only mean that the drawer, Filipinas Orient,
intended the same for deposit only by the payee, Pipe Master. The effect of
crossing a check means that the drawer had intended the check for deposit
only by the rightful person, i.e., the payee named therein Pipe Master.
The banks accommodated Yu Kio, being a valued client and the president of
Pipe Master, and accepted the crossed checks. They stamped at the back
thereof that all prior indorsements and/or lack of indorsements are
guaranteed. In so doing, they became general endorsers. Under Section 66
of the Negotiable Instruments Law, an endorser warrants that the
instrument is genuine and in all respects what it purports to be; that he has a
good title to it; that all prior parties had capacity to contract; and that the
instrument is at the time of his indorsement valid and subsisting.
Clearly, petitioner banks, being endorsers, cannot deny liability.
o In Associated Bank v. Court of Appeals, the Court held that the
collecting bank or last endorser generally suffers the loss because it
has the duty to ascertain the genuineness of all prior indorsements and
is privy to the depositor who negotiated the check.
PBCom, as the drawee bank, cannot be held liable since it mainly relied on
the express guarantee made by petitioners, the collecting banks, of all prior
indorsements.
Evidently, petitioner banks disregarded established banking rules and
procedures. They were negligent in accepting the checks and allowing the
transaction to push through. Therefore, petitioner banks are liable to
respondent Filipinas Orient.
In fine, it must be emphasized that the law imposes on the collecting bank
the duty to diligently scrutinize the checks deposited with it for the purpose
of determining their genuineness and regularity. The collecting bank, being
primarily engaged in banking, holds itself out to the public as the expert on
this field, and the law thus holds it to a high standard of conduct. Since
petitioner banks negligence was the direct cause of the misappropriation of
the checks, they should bear and answer for respondent Filipinas Orients
loss, without prejudice to their filing of an appropriate action against Yu Kio.

Far East Realty Investment Inc. vs. Court of Appeals [GR L-36549, 5 October 1988]

Second Division, Paras (J): 4 concur

See case entry 38

Facts: In its complaint dated May 9, 1968, filed with the City Court of Manila, (Civil Case 170859) against Dy
Hian Tat, Siy Chee and Gaw Suy An for the collection and payment of P4,500.00 representing the face value
of an unpaid and dishonored check, Far East Realty Investment Inc. (FERII) alleged, among others, that on
13 September 1960, Dy et al. approached FERII at its office in Manila and asked the latter to extend to them
an accommodation loan in the sum of P4,500.00, which they needed in their business, and which they
promised to pay, jointly and severally, in one month time; that they proposed to pay FERII interest thereon at
the rate of 14% per annum, as in fact they delivered to FERII the China Banking Corporation (ChinaBank)
Check VN-915564, dated 13 September 1960, for P4,500.00, drawn by Dy, and signed by them at the back of
said check, with the assurance that after one month from 13 September 1960, the said check would be
redeemed by them by paying cash in the sum of P4,500.00, or the said check can be presented for payment
on or immediately after one month and said bank would honor the same; that, in order to accommodate Dy et
al., FERII agreed and actually extended to Dy et al. an accommodation loan in the sum of P4,500.00 under
the aforesaid conditions proposed by Dy et al., which amount was delivered to the later; that on 5 March
1964, the aforesaid check was presented for payment to the ChinaBank, but said check bounced and was not
cashed by said bank, for the reason that the current account of the drawer thereof had already been closed;
and that subsequently, FERII demanded from Dy et al. the payment of their aforesaid loan obligation, but the
latter failed and refused to pay notwithstanding repeated demands therefor. Gaw and Dy filed their answers,
while on 31 March 1970, Siy was declared in default. After hearing, the City Court of Manila rendered its
decision in favor of FERII, ordering Dy et al. to pay FERII, jointly and severally, the sum of P4,500.00 with
interest thereon at the legal rate from 13 September 1960 until the said amount is fully paid; plus the sum of
P500.00 by way of attorney's fees, plus the costs of suit. The decision of the city court was appealed by Dy et
al. to the Court of First Instance of Manila, where the case was heard de novo for lack of transcript of
stenographic notes taken in the city court. After trial, the Court of First Instance of Manila, Branch IX, rendered
a decision in Civil Case 80583, dated 15 October 1971, affirming the decision of the city court, ordering Dy et
al. to pay, jointly and severally, FERII the sum of P4,500.00, plus interest at the rate of 14% per annum, from
13 September 1960, until fully paid, plus the sum of P1,000.00 in the concept of attorney's fees; and costs of
suit. Dy et al. filed a petition for review with the Court of Appeals. On 12 February 1973, the appellate court,
finding that the questioned check was not given as collateral to guarantee a loan secured by Dy et al. who
allegedly came as a group to FERII on 13 September 1960, but passed through other hands before reaching
FERII and the said check was not presented within a reasonable time and after its issuance, reversed the
decision of the Court of First Instance. Its motion for reconsideration having been denied, FERII filed the
petition for review.

Issue: Whether presentment for payment and notice of dishonor of the questioned check were
made within reasonable time.

Held: 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 thereof. Notice may be given as soon as the is dishonored; and unless delay is
excused must be given within the time fixed by the law. No hard and fast demarcation line can be drawn
between what may be considered as a reasonable or an unreasonable time, because "reasonable time"
depends upon the peculiar facts and circumstances in each case. "Reasonable time" has been defined as
so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do,
conveniently, what the contract or duty requires should be done, having a regard for the rights and
possibility of loss, if any, to the other party Herein, it is obvious that presentment and notice of dishonor
were not made within a reasonable time. The check in question was issued on 13 September 1960, but
was presented to the drawee bank only on 5 March 1964, and dishonored on the same date. After
dishonor by the drawee bank, a formal notice of dishonor was made by FERII through a letter dated 27
April 1968. Under these circumstances, FERII undoubtedly failed to exercise prudence and diligence on
what he ought to do as required by law. FERII likewise failed to show any justification for the
unreasonable delay.

I nternational Corporate Bank vs. Gueco (351 SCRA 516)

10 Dec
FACTS:
The respondents obtained a loan from the petitioner to purchase a motor vehicle (car). The
respondents defaulted in payment of installments. A civil case was filed by the petitioner which
resulted later into negotiations in lowering the remaining unpaid balance from P184,000.00 to
P150,000.00, detaining the car until payment thereof. Respondent delivered a managers check
but petitioner insisted on the signing of Joint Motion to Dismiss, still holding the motor
vehicle. Respondent initiated civil action for damages before MTC but the case was dismissed
for lack of merit. On appeal to RTC, the decision of MTC was reversed ordering herein
petitioners to indemnify the respondents. The Court of Appeals likewise affirmed the decision of
the RTC.
ISSUE:
Whether or not the respondents are entitled of indemnification for damages.
RULING:
NO. Petitioners act of requiring respondents to sign the Joint Motion to Dismiss can not be said
to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the
parties. The law presumes good faith. In fact, the act of petitioner bank in lowering the debt of
respondent from P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to
settle the case.
The decision of the Court of Appeals affirming the decision of the RTC was set
aside. Respondents were ordered to pay the original obligation amounting to P150,000.00 to the
petitioner upon surrender or cancellation of the managers check in the latters possession,
afterwhich, petitioner is to return the subject motor vehicle in good working condition.

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