NEGO - Quevedo 1
Camille Umali
CHAPTER 2: TRANSFER
GREAT ASIAN SALES CENTER CORPORATION V CA
381 SCRA 557; CARPIO; April 25, 2002
FACTS
-Great Asian is engaged in the business of buying and
selling household appliances. In March 1981, the
board of directors of Great Asian approved a
resolution authorizing its Treasurer and GM, Arsenio
Lim Piat, Jr. to secure a loan from Bancasia in an
amount not to exceed P1M and also authorized
Arsenio to sign all papers, documents or promissory
notes necessary to secure the loan. In Feb. 1982, the
board of directors of Great Asian approved a 2nd
resolution authorizing Great Asian to secure a
discounting line with Bancasia in an amount not
exceeding P2M and also designated Arsenio as the
authorized signatory to sign all instruments,
documents and checks necessary to secure the
discounting line.
-In March 1981 and 1982, Tan Chong Lin signed 2 Surety
Agreements in favor of Bancasia to guarantee,
solidarily, the debts of Great Asian to Bancasia.
Great Asian, through Arsenio, signed 4 Deeds of
Assignment of Receivables, assigning to Bancasia 15
postdated checks issued by various customers in
payment for appliances and other merchandise.
Arsenio endorsed all the 15 checks by signing his
name at the back of the checks. Eight of the
dishonored checks bore the endorsement of Arsenio
below the stamped name of Great Asian Sales
Center, while the rest of the dishonored checks just
bore the signature of Arsenio. The drawee banks
dishonored the fifteen checks on maturity when
deposited for collection by Bancasia, with any of the
following as reason for the dishonor: account closed,
payment stopped, account under garnishment, and
insufficiency of funds. After the drawee bank
dishonored the checks, Bancasia sent letters to Tan
Chong Lin, notifying him of the dishonor and
demanding payment from him. Neither Great Asian
nor Tan Chong Lin paid Bancasia the dishonored
checks.
-In June 1982, Bancasia filed a complaint for collection of
a sum of money against Great Asian and Tan Chong
Lin. Great Asian raised the alleged lack of authority
of Arsenio to sign the Deeds of Assignment as well as
the absence of consideration and consent of all the
parties to the Surety Agreements signed by Tan
Chong Lin.
ISSUES
1. WON Arsenio had authority to execute the Deeds of
Assignment and thus bind Great Asian
2. WON Great Asian is liable to Bancasia under the
Deeds of Assignment for breach of contract pursuant
to the civil code, independent of the negotiable
instruments law
3. WON Tan Chong Lin is liable to Great Asian under the
surety agreements.
HELD
1. YES
-The Corporation Code of the Philippines vests in the
board of directors the exercise of the corporate
powers of the corporation, save in those instances
where the Code requires stockholders approval for
certain specific acts. In the ordinary course of
business, a corporation can borrow funds or dispose
of assets of the corporation only on authority of the
board of directors. The board of directors normally
designates one or more corporate officers to sign loan
documents or deeds of assignment for the
corporation.
-To secure a credit accommodation from Bancasia, the
board of directors of Great Asian adopted 2 board
resolutions on different dates. (text of resolutions
shown in case) As plain as daylight, the 2 board
resolutions clearly authorized Great Asian to secure a
loan or discounting line from Bancasia. The 2 board
resolutions also categorically designated Arsenio as
the authorized signatory to sign and deliver all the
implementing documents, including checks, for Great
Asian. There is no iota of doubt whatsoever about the
purpose of the 2 board resolutions, and about the
authority of Arsenio to act and sign for Great Asian.
Arsenio had all the proper and necessary authority from
the board of directors of Great Asian to sign the
Deeds of Assignment and to endorse the fifteen
postdated checks. Arsenio signed the Deeds of
Assignment as agent and authorized signatory of
Great Asian under an authority expressly granted by
its board of directors. The signature of Arsenio on the
Deeds of Assignment is effectively also the signature
of the board of directors of Great Asian, binding on
the board of directors and on Great Asian itself.
2. YES
-Bancasias complaint against Great Asian is founded on
the latters breach of contract under the Deeds of
Assignment. The Deeds of Assignment uniformly
provided for one vital suspensive condition: in case
the drawers fail to pay the checks on maturity, Great
Asian obligated itself to pay Bancasia the full face
value of the dishonored checks, including penalty and
attorneys fees. The failure of the drawers to pay the
checks is a suspensive condition, the happening of
which gives rise to Bancasias right to demand
payment from Great Asian. This conditional
obligation of Great Asian arises from its written
contracts with Bancasia as embodied in the Deeds of
Assignment.
-By express provision in the Deeds of Assignment, Great
Asian unconditionally obligated itself to pay Bancasia
the full value of the dishonored checks. In short,
Great Asian sold the postdated checks on with

recourse basis against itself. This is an obligation that
Great Asian is bound to faithfully comply because it
has the force of law as between Great Asian and
Bancasia, as provided in Art 1159 of the Civil Code.
Great Asian and Bancasia agreed on this specific with
recourse stipulation, despite the fact that the
receivables were negotiable instruments with the
endorsement of Arsenio. The contracting parties had
the right to adopt the stipulation which is separate
and distinct from the warranties of an endorser under
the Negotiable Instruments Law.
-The explicit with recourse stipulation against Great Asian
effectively enlarges, by agreement of the parties, the
liability of Great Asian beyond that of a mere endorser
of a negotiable instrument. Thus, whether or not
Bancasia gives notice of dishonor to Great Asian, the
latter remains liable to Bancasia because of the with
recourse stipulation which is independent of the
warranties of an endorser under the Negotiable
Instruments Law.
-There is nothing in the Negotiable Instruments Law or in
the Financing Company Act, that prohibits Great
Asian and Bancasia parties from adopting the with
recourse stipulation uniformly found in the Deeds of
Assignment. Instead of being negotiated, a
negotiable instrument may be assigned. Assignment
of a negotiable instrument is actually the principal
mode of conveying accounts receivable under the
Financing Company Act. Since in discounting of
receivables the assignee is subrogated as creditor of
the receivable, the endorsement of the negotiable
instrument becomes necessary to enable the
assignee to collect from the drawer. This is
particularly true with checks because collecting banks
will not accept checks unless endorsed by the payee.
The purpose of the endorsement is merely to facilitate
collection of the proceeds of the checks.
-The purpose of the endorsement is not to make the
assignee finance company a holder in due course
because policy considerations militate against
according finance companies the rights of a holder in
due course. Otherwise, consumers who purchase
appliances on installment, giving their promissory
notes or checks to the seller, will have no defense
against the finance company should the appliances
NEGO - Quevedo 2
Camille Umali
later turn out to be defective. Thus, the endorsement
does not operate to make the finance company a
holder in due course. For its own protection,
therefore, the finance company usually requires the
assignor, in a separate and distinct contract, to pay
the finance company in the event of dishonor of the
notes or checks.
-As endorsee of Great Asian, Bancasia had the option to
proceed against Great Asian under the Negotiable
Instruments Law. Had it so proceeded, the
Negotiable Instruments Law would have governed
Bancasias cause of action. Bancasia, however, did
not choose this route. Instead, Bancasia decided to
sue Great Asian for breach of contract under the Civil
Code, a right that Bancasia had under the express
with recourse stipulation in the Deeds of Assignment.
The exercise by Bancasia of its option to sue for breach of
contract under the Civil Code will not leave Great
Asian holding an empty bag. Great Asian, after
paying Bancasia, is subrogated back as creditor of
the receivables. Great Asian can then proceed
against the drawers who issued the checks. Even if
Bancasia failed to give timely notice of dishonor, still
there would be no prejudice whatever to Great Asian.
Under the Negotiable Instruments Law, notice of
dishonor is not required if the drawer has no right to
expect or require the bank to honor the check, or if
the drawer has countermanded payment. In the
instant case, all the checks were dishonored for any
of the following reasons: account closed, account
under garnishment, insufficiency of funds, or
payment stopped. In the first three instances, the
drawers had no right to expect or require the bank to
honor the checks, and in the last instance, the
drawers had countermanded payment.
3. YES
-Tan Chong Lin, by signing the Surety Agreements,
explicitly and unconditionally bound himself to pay
Bancasia, solidarily with Great Asian, if the drawers of
the checks fail to pay on due date. The condition on
which Tan Chong Lins obligation hinged had
happened. As surety, Tan Chong Lin automatically
became liable for the entire obligation to the same
extent as Great Asian.

CHAPTER III: HOLDER IN DUE COURSE [Cases cited in Campos]
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 managers 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 Yangs
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
ATRIUM MANAGEMENT CORPORATION VS. COURT OF APPEALS
Facts:
Hi-Cement Corporation through its corporate signatories,
Lourdes M. de Leon, 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 Atrium
Management Corporation for valuable consideration.
Upon presentment for payment, the drawee bank
dishonored all four checks for the common reason
"payment stopped". On 3 January 1983, Atrium
Management Corporation filed with the Regional
Trial Court, Manila an action for collection of the
proceeds of four postdated checks in the total
amount of P2 million, after its demand for payment of
the value of the checks was denied. After due
proceedings, on 20 July 1989, the trial court
rendered a decision ordering Lourdes M. de Leon,
her husband Rafael de Leon, E.T. Henry and Co.,
Inc. and Hi-Cement Corporation to pay Atrium jointly
and severally, the amount of P2 million
corresponding to the value of the four checks, plus
interest and attorney's fees. On appeal to the Court
NEGO - Quevedo A
Camille Umali
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 isnt a holder in due coursefirst,
because he took the checks without valuable
consideration; and second, he failed to inquire
on Chandimaris 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
latters title to the checks was, if any, or the nature of
his possession.
of Appeals, on 17 March 1993, the Court of Appeals
promulgated its decision modifying the decision of
the trial court, absolving Hi-Cement Corporation from
liability and dismissing the complaint as against it.
The appellate court 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. Hence, Atrium filed the petition.
Issue [1]: Whether the issuance of the checks was an
ultra vires act.
Held [1]: The record reveals that Hi-Cement Corporation
issued the four (4) checks to extend financial
assistance to E.T. Henry, not as payment of the
balance of the P30 million pesos cost of hydro oil
delivered by E.T. Henry to Hi-Cement. Why else
would petitioner de Leon ask for counterpart checks
from E.T. Henry if the checks were in payment for

hydro oil delivered by E.T. Henry to Hi-Cement? Hi-
Cement, however, maintains that the checks were
not issued for consideration and that Lourdes and
E.T. Henry engaged in a "kiting operation" to raise
funds for E.T. Henry, who admittedly was in need of
financial assistance. There was no sufficient
evidence to show that such is the case. Lourdes M.
de Leon is the treasurer of the corporation and is
authorized to sign checks for the corporation. At the
time of the issuance of the checks, there were
sufficient funds in the bank to cover payment of the
amount of P2 million pesos. Thus, the act of issuing
the checks was well within the ambit of a valid
corporate act, for it was for securing a loan to
finance the activities of the corporation, hence, not
an ultra vires act. An ultra vires act is one committed
outside the object for which a corporation is created
as defined by the law of its organization and
therefore beyond the power conferred upon it by law"
The term "ultra vires" is "distinguished from an illegal
act for the former is merely voidable which may be
enforced by performance, ratification, or estoppel,
while the latter is void and cannot be validated.
Issue [2]: Whether Lourdes M. de Leon and Antonio de
las Alas were personally liable for the checks issued
as corporate officers and authorized signatories of
the check.
BATAAN CIGAR AND CIGARETTE FACTORY VS. CA
Facts: Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a
corporation involved in the manufacturing of
cigarettes, engaged one of its suppliers, King Tim
Pua George (George King), to deliver 2,000 bales of
tobacco leaf starting October 1978. In consideration
thereof, BCCFI, on 13 July 1978 issued crossed
checks post dated sometime in March 1979 in the
total amount of P820,000. Relying on the supplier's
representation that he would complete delivery
within 3 months from 5 December 1978, BCCFI
agreed to purchase additional 2,500 bales of
tobacco leaves, despite the supplier's failure to
deliver in accordance with their earlier agreement.
Again, BCCFI issued postdated crossed checks in
the total amount of P1,100,000, payable sometime in
September 1979. During these times, George King
was simultaneously dealing with State Investment
House Inc. (SIHI). On 19 July 1978, he sold at a
discount check TCBT 551826 bearing an amount of
P164,000.00, post dated 31 March 1979, drawn by
BCCFI, naming George King as payee to SIHI. On
19 December and 26, 1978, he again sold to SIHI
checks TCBT 608967 & 608968, both in the amount
of P100,000.00, post dated September 15 & 30,
1979 respectively, drawn by BCCFI in favor of
George King. In as much as George King failed to
deliver the bales of tobacco leaf as agreed despite
its demand, BCCFI issued on 30 March 1979, a stop
payment order on all checks payable to George
King, including check TCBT 551826. Subsequently,
stop payment was also ordered on checks TCBT
NEGO - Quevedo 2
Camille Umali
Held [2]: Personal liability of a corporate director, trustee
or officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only
when: (1) He assents (a) to a patently unlawful act of
the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of
interest, resulting in damages to the corporation, its
stockholders or other persons; (2) He consents to
the issuance of watered down stocks or who, having
knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto; (3)
He agrees to hold himself personally and solidarily
liable with the corporation; or (4) He is made, by a
specific provision of law, to personally answer for his
corporate action." Herein, Lourdes M. de Leon and
Antonio de las Alas as treasurer and Chairman of Hi-
Cement were authorized to issue the checks.
However, Ms. de Leon was negligent when she
signed the confirmation letter requested by Mr. Yap
of Atrium and Mr. Henry of E.T. Henry for the
rediscounting of the crossed checks issued in favor
of E.T. Henry. She was aware that the checks were
strictly endorsed for deposit only to the payee's
account and not to be further negotiated. What is
more, the confirmation letter contained a clause that
was not true, that is, "that the checks issued to E.T.
Henry were in payment of Hydro oil bought by Hi-
Cement from E.T. Henry". Her negligence resulted in
damage to the corporation. Hence, Ms. de Leon may
be held personally liable therefor.
608967 & 608968 on September 14 & 28, 1979,
respectively, due to George King's failure to deliver
the tobacco leaves.
Efforts of SIHI to collect from BCCFI having failed, it
instituted the present case with the Regional Trial
Court, naming only BCCFI as party defendant. The
trial court pronounced SIHI as having a valid claim
being a holder in due course. It further said that the
non-inclusion of King Tim Pua George as party
defendant is immaterial in this case, since he, as
payee, is not an indispensable party.
Raised in the Court of Appeals, the appellate court
affirmed the decision of the trial court. Hence, the
present petition for review.
The Supreme Court granted the petition, finding that the
court a quo erred in the application of law; and thus
reversed the decision of the Regional Trial Court as
affirmed by the Court of Appeals with cost against
SIHI.
1. Section 52 NIL; Holder in Due Course
Section 52 of the The Negotiable Instruments Law
states what constitutes 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."
2. Section 59 NIL
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.
3. SIHI vs. IAC on all fours
The facts in thepresent case are on all fours to the
case of State Investment House, Inc. (the very
respondent in this case) v. Intermediate Appellate
Court wherein the Court made a discourse on the
effects of crossing of checks.
4. Check defined; Kinds
A check is defined by law as a bill of exchange
drawn on a bank payable on demand. There are a
variety of checks, the more popular of which are the
memorandum check, cashier's check, traveler's
check and crossed check. Crossed check is one
where two parallel lines are drawn across its face or
across a corner thereof. It may be crossed generally
or specially.
5. Crossed check
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. It may be
issued so that presentment can be made only by a
bank. Veritably the Negotiable Instruments Law (NIL)
does not mention "crossed checks," although Article
541 of the Code of Commerce refers to such
instruments.
6. General viewpoint and English setting on crossed
check: Negotiability of a check not affected
According to commentators, the negotiability of a
check is not affected by its being crossed, whether
specially or generally. It may legally be negotiated
from one person to another as long as the one who
encashes the check with the drawee bank is another
bank, or if it is specially crossed, by the bank
NEGO - Quevedo 3
Camille Umali
mentioned between the parallel lines. This is
specially true in England where the Negotiable
Instrument Law originated.
7. Philippine setting: Effects of a crossed check
In the Philippine business setting, beset with
bouncing checks, forging of checks, and so forth that
banks have become quite guarded in encashing
checks, particularly those which name a specific
payee. Unless one is a valued client, a bank will not
even accept second indorsements on checks. 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.
8. Crossed check should put holder on inquiry to
ascertain indorsers title or nature of
possession; Effects of failure, Section 52 (c) NIL
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 King; because
the checks were issued with the intention that
George King 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.
9. SIHI can collect from immediate indorser, George
King
It does not mean, however, that SIHI 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, SIHI can collect from the
immediate indorser, in this case, George King.

BPI V ALFRED BEARWIN & CO. (1928)
~ricky~
NATURE
Appeal by Anselmo Diaz against the CFI of Iloilos order
for him to satisfy 2 promissory notes he issued in
favor of Alfred Berwin & Co.
FACTS
-The Bank of the Philippine Islands (BPI) filed a
collection suit against Alfred Berwin & Co (ABC).
Diaz, ABCs debtor, was given notice, when the
preliminary attachment was ordered, not to deliver
the payment of his debt to ABC. The CFI of Iloilo
rendered judgment in favor of BPI.
-To effect the execution of the judgment, BPI prayed
that Diaz be summoned to testify concerning the
credit of ABC against him. Diaz acknowledged his
indebtedness in the sum of P20,000, the balance of
credit for a greater amount. The P20,000 was
evidenced by two promissory notes he issued in
favor of ABC.
-It does not appear, however, from the record
whether such promissory notes are still in the hands
of ABC. It was not known whether ABC is still the
ELGIN NATL BANK V GOECKE (1920)
~joey~
FACTS
-Elgin National Brewing Company executed two
demand notes, one for $3K (Note A) and the other
for $2500 (Note B), each payable to the makers
order and indorsed in blank ink by it & by 5
accommodation indorsers, including Frank A.
Goecke, the company manager. The
accommodation indorsers signed on representation
that the proceeds were to be used to pay for
supplies for the brewery.
-Both notes were diverted by Goecke from their
intended purpose. Note A was indorsed to Elgin
National Bank as collateral security for a note (Note
C) earlier executed by Goecke as maker, the last
renewal of which was made on Nov. 22, 1912 for 6
months. Note B was indorsed to the same bank as
payment for 5 other notes earlier executed by the
brewing company as maker and purchased by the
bank. The bank did not know of the diversion of the
two demand notes from their intended purpose.
-Brewing company defaulted. Bank sued all 5
accommodation indorsers.
-TC ruled in favor of the bank. Appellate court
affirmed.
ISSUE
WON the accommodation indorsers are liable to the bank
notwithstanding the diversion of the proceeds of the
notes
HELD: YES
NEGO - Quevedo 4
Camille Umali
holder in due course of the promissory notes or
whether it had already been alienated.
ISSUE
WON Diaz may be compelled to pay Alfred Berwin & Co.,
or the sheriff as a credit in favor of said corporation.
HELD: NO.
Reasoning Diaz cannot be compelled to pay the amount
of the said promissory notes to any person save the
holder of such documents in due course, for said
person is the one entitled to receive it. To compel
Diaz to pay ABC would be to expose him to the
situation in which, having paid the amount of the
promissory notes without settling the same, a holder
in due course may appear and within all reason
demand its full payment.
- The fact that he was given notice when the preliminary
attachment was ordered does not change the
situation because the debt was secured by
negotiable instruments. Notwithstanding such notice,
it was beyond Diazs power to prevent ABC from
negotiating the promissory notes.
Disposition Order revoked.
Ratio An indorsee of a negotiable note who has taken it,
before its maturity, as collateral security for a pre-
existing debt and without any express agreement, is
deemed a holder for a valuable consideration, and
that he holds it free from latent defenses on the part
of the maker.
Reasoning
-The accommodation indorsers are liable to the bank on
the notes, although the bank at the time of taking the
instruments knew that they were only
accommodation parties, if the bank is a holder for
value, as the notes were indorsed to it before
maturity and without notice for their restricted use
and purpose.
-As for Note B, it is clear that the bank is a holder for
value. The consideration paid by the bank for this
note was the cancellation and surrender by it of the 5
other notes executed by the brewing company.
-Note A was not delivered to the bank and accepted by it
as security until Dec. 10, 1912. There is no proof in
the record that at the time Note C was renewed on
Nov. 22 there was an agreement that Note A was to
be put up as collateral and in part consideration for
the extension of Note C. Thus, it is argued by the
accommodation parties that mere delivery of Note A,
without agreement for further extension of time or
other agreement for Note C, does not make the bank
a bona fide holder for value. This contention is
without merit. See ratio
Dispositive Judgment affirmed.

MERCHANTS NATL BANK OF ST. PAUL V STA. MARIA SUGAR CO. (1914)
~chriscaps~
FACTS
-Sta. Maria gave netotiable note payable to order of
American Hoist & Derrick Co (payee).
-Payee deposited the note in Merchants Natl Bank,
w/c gave depositor credit representing the principal
& accrued interest ($2,427.36).
-After this, there were subsequent deposits and
withdrawals. The smallest balance during this period
was $6,294.04.
-Discounting bank had no knowledge of claimed
defense of maker until receipt of its letter.
-The Bank sued the maker. Maker (Sta. Maria)
claimed that the Bank is not a holder for value and
not a holder in due course.
ISSUE: WON the Bank is a holder in due course
NATL BANK OF COMMERCE V MORGAN (1921)
~edel~
FACTS
-Natl Hay Company (NHC) deposited with NBC a draft
and a bill of lading.
-Said items were received by the NBC and were then
credited to the account of NHC.
-Eventually, the draft with the bill of lading attached
was forwarded by NBC to the First National Bank of
Birmingham (FNBB) for collection and remittance to
NBC and the amount of the draft was paid by the
drawee to FNBB.
-Prior to remittance (of the proceeds of the draft) by the
FNBB to NBC, Morgan (a creditor of the NHC)
instituted attachment proceedings against NHC and
service was sought to be perfected by the process of
garnishment directed to FNBB.
-FNBB, in response to the garnishment, admitted that it
held in its possession the proceeds of the draft but said
that NBC had the right to claim said fund. NBC then
laid claim to the fund.
-Morgan won at the circuit court. Hence, this appeal by
NBC.
ISSUE
WON NBC received the draft as a mere collecting agent or
as purchaser/ WON NBC is a holder for value
HELD
-NBC was a mere collector. TF, NBC was not a holder
for value. FNBB was ordered to pay the proceeds of
the draft to Morgan.
-(*Campos note: The ruling in this case represents the
minority view that as long as the balance in the
depositors account equals or exceeds the amount of
the instrument deposited, the instrument cannot be
considered withdrawn for the purpose of treating the
bank as holder for value (as per sec.26 NIL.))
NEGO - Quevedo B
Camille Umali
HELD: YES
-Until 1 month after plaintiff had discounted the
instrument, it had no knowledge or suspicion of any
infirmity.
-Mere discounting of the note and placing the
amount of said discount to the credit of the holder
would not then have constituted a transfer for value
because the bank would have parted with nothing,
there would have been a mere bookkeeping entry.
But if the sum had subsequently been checked out,
then value would have passed.
-We should agree with opinion of Justice Brewer:
The first debits are to be charged against the first
credits. It follows therefore, that the bank was a
bona fide holder for value.
Reasoning In this case, NBC insists that it was a
purchaser for value and that NHCs account had never
been overdrawn and it had balance to its credit in
excess of the draft, continuously from the day the said
draft was received until the day of the garnishment.
-The Court, however, denied their contention and held
that the case of Fredonia v. Tommei was not in conflict
with their holding. In said case, Whites account had
been fully checked out and that the proceeds of the
note had been fully exhausted, just as in the case at
bar, if the proof showed that the NHC had checked out
its entire balance at any time between the deposit of
the draft and the notice of garnishment. But as had
been held, the NHC here had a standing balance to its
credit with the NBC throughout this period in excess of
the draft.
-Furthermore, the Court thinks that their position is
more just and equitable in view of the fact that a bank
has the right to apply all unchecked deposits against
the debt due it by the depositor. And they added that
this holding cannot be of serious detriment to banks
while a contrary view might result in furnishing a
weapon to the negotiator of notes and bills against
their creditors or persons having a right or equity in or
against the instruments negotiated.
-All the other cases cited by NBC (ie. FOX v. Bank of
Kansas, Dreilling v. First National Bank etc) were held
to be contrary to the Courts decision and to NBCs
contention as well.
(*Basically, NBC cannot be considered as a holder in
due course (as per Sec.52(3)) or as a purchaser for
value in this case since NBC credited the amount of
the draft to the deposit account of NHC and NBC failed
to show that the amount credited was absorbed by
existing debts or subsequently checked out. Here,
NHC had a balance on deposit in excess of the amount
of the draft continuously from the negotiation till the
garnishment. TF, NBC didnt show that they have given
value for the instrument ergo NBC not a
holder/purchaser for value.)

UNAKA NATL BANK V BUTLER (1904)
FACTS
-Harris drew a check for $15.25 on the Unaka National Bank
payable to the order of Butler and delivered the check to
the payee for value. The payee indorsed the check in
blank and negotiated it to Davis who on the next day
lost it on the highway, At the request of the indorsee,
Davis, the drawer ordered payment stopped by notice to
the drawee bank. The stop order was overlooked and
the check was paid by the drawee to Ward & Fryberg,
merchants who, within a week after the checks
issuance to the payee, had taken the check in payment
of goods sold to a customer who was unknown to them
but who was supposed by them to be the owner. The
original payee, Butler, for the use of his indorsee Davis,
the loser of the check, sued the drawee bank.
ISSUE
WON Ward & Fryberg purchased the check for value, in due
of course of trade, and without actual knowledge of the
infirmity in the title of the holder
DE OCAMPO V GATCHALIAN (1961)
FACTS
-Anita Gatchalian was looking for a car to buy. Her friend
Emil Fajardo brought Manuel Gonzales to her house
because Manuel had a car to show her. Manuel said
he was duly authorized by Ocampo Clinic to sell the
car. Anita liked the car. Anita told Manuel to bring the
car together with the registration the next day, so
that Anita's husband can inspect it also. Manuel said
that the owner would most likely not allow him to
bring the registration unless there's a showing that
the party interested in the purchase of the car is
ready and willing to pay for it. So Anita issued a
check for P600 in Ocampo's name.
-The next day, Manuel didn't come. Instead, he went to
Ocampo Clinic and paid for her wife's outstanding
balance of P441.75 with the clinic. He was given
P158.25 cash as sukli. Meanwhile, when Manuel
didn't come, Anita got suspicious and gave the bank
a stop payment order on the check. Ocampo was not
aware of the arrangement between Manuel and
Anita at the time Manuel gave it to him as payment
for wife's bills.
-Ocampo went after Anita. Ocampo won. Anita appealed.
She contends that the check is not a negotiable
instrument and that Ocampo is not a holder in due
course.
ISSUES
1. WON original payee of the check can become a
holder in due course
2. WON there was valid negotiation of the check
(basically, WON Ocampo had NO NOTICE of defect
of holder's title)
3. WON Ocampo is a holder in due course
HELD
1. YES. Sec 191 of NIL defines HOLDER as the payee
or indorsee of a bill or note, who is in possession of
NEGO - Quevedo A
Camille Umali
HELD
YES. To constitute notice of an infirmity in an instrument, or
defect of 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
amounted to bad faith. The purchaser of a negotiable
instrument owes no duty to the former holders to
actively inquire into the title of the party in possession,
and that circumstances of suspicion and gross
negligence are not of themselves bad faith, but only
evidence tending to establish it.
-There is no doubt, upon this record, that Ward & Fryberg
purchased this check for value, in due course of trade,
and without actual knowledge of the infirmity of the title
of the holder. It is equally clear that there was no bad
faith in the transaction. The result is, they acquired a
perfect title to the check by their purchase, and had the
right to collect it; and at the same time, in consequence
of the same facts, Davis lost his title, and is not entitle to
recover its proceeds from the bank.
Disposition Judgment of the circuit court is reversed, and
the suit dismissed.
it, or the bearer thereof. While Sec 52 defines a HDC
as a HOLDER who has taken the instrument under
the 4 conditions. Therefore, a payee can be a HDC.
2. YES. The check payable to Ocampo was entrusted to
Manuel. The latter then was the agent of Anita.
When the agent (Manuel) of drawer (anita)
negotiated the check with the intention of getting its
value from Ocampo, negotitation took place through
no fault of Ocampo, unless it can be shown that
Ocampo should be considered as having notice of
the defect in the possession of holder Manuel.
3. NO. Ocampo can't be a HDC because although he
had no notice of defect in title, he must also have
taken the instrument in good faith. These facts
should have put him on guard and inquired into the
title of Manuel:
a. Anita had no obligation or liability to Ocampo Clinic;
b. the amount on the check didn't correspond exactly to
Manuel's utang; and
c. the check had two parallel lines in the upper left hand
corner, which in practice means that the check was
for deposit only and cant be converted into cash.
-It would've been easy for Ocampo to inquire because he
knew Anita's husband. His failure to do so is gross
neglect in not finding out the nature of the title and
possession of Manuel, which amounts to legal
absence of good faith. He therefore cannot be
considered a holder in good faith. Sec 52 requires
the holder to be in good faith to be considered a
HDC. Therefore, Ocampo cannot be a HDC.
-The presumption in Sec 59 that every holder is a HDC
cannot apply in this case because there were
suspicious circumstances that should have put the
person in to inquiry as to the title of the holder who
negotiated the instrument to him. The test is of the
reasonable prudent man and good faith.

CHIANG YIA MIN vs. COURT OF APPEALS
Facts:
US$100,000.00 was sent by Hang Lung Bank Ltd. Of
Hong Kong on February 7, 1979 through the
Pacific Banking Corporation to RCBC. The
remittance was for petitioners own account and was
intended to qualify him as a foreign investor under
Philippine laws. It was sent by petitioner himself prior
to his arrival in the Philippines.
When petitioner checked on his money sometime in mid-
1985, he found out that the dollar deposit was
transferred to the Shaw Boulevard branch of
respondent bank and converted to a peso account,
which had a balance of only P1,362.10 as of October
29, 1979.
A letter of respondent bank dated August 9, 1985 stated
that petitioners Current Account was opened on
February 8, 1979, with an initial deposit of
P729,752.20; a total of P728,390.00 was withdrawn
by way of five checks apparently issued by
petitioner in favor of Papercon (Phils.), Inc., and a
business venture of Tom Pek. Thus, the balance of
the account was reduced to P1,362.10 as of October
29, 1979 and no transactions were made on the
account since.
In the same letter, the bank stated that it was no longer
able to locate the microfilm copies of the issued
checks, specimen signature cards, and other records
related to the questioned account, since the account
had been inactive for more than five years.
Petitioner: he did not cause the transfer of his money to
the Shaw Boulevard branch of RCBC, as his
instructions in the telegraphic transfer were for the
money to be remitted to the RCBC head office in
Makati, nor its conversion to pesos and the
subsequent withdrawals. Nor did he authorize
anyone to perform these acts.
Bank: should it be made liable to petitioner, said third-
party defendants as payees and beneficiaries of the
issued checks should be held solidarily liable with it
Papercon: did not deny receiving the checks worth
P712,700.00 but argued that unless proven
otherwise, the said checks should be presumed to
have been issued in their favor for a sufficient and
valuable consideration.
TC: withdrawals were not made by petitioner nor
authorized by him, and held respondent bank liable
CA: the opening of the current account and the
withdrawals therefrom were authorized by petitioner;
accordingly, it reversed the decision of the RTC and
absolved private respondents of liability
Issue: WON petitioner has proved, by a preponderance
of the evidence, that bank connived with Papercon
and Tom Pek in allowing the withdrawals from
NEGO - Quevedo A
Camille Umali
Current Account, knowing these to be unauthorized
by petitioner, and with the purpose of defrauding
him.
Held: No. There is thus no evidence to demonstrate that
bank and Papercon and Tom Pek colluded to
defraud petitioner of his money. What the evidence
in fact establishes is that the opening of the account
and the withdrawals were authorized by petitioner,
and that the signatures appearing on the questioned
checks were petitioners
Ratio:
1. petitioner originally sued upon an allegation of
negligence on the part of respondent banks officers
and employees in allowing the said withdrawals
2. Under either theory of fraud or negligence, it is
incumbent upon petitioner to show that the
withdrawals were not authorized by him. If he is
unable to do so, his allegations of fraud or
negligence are unsubstantiated and the presumption
that he authorized the said withdrawals will apply.
3. Petitioner's allegation was countered by the
testimony of Catalino Reyes, the accountant of
Pioneer Business Forms (a business venture of Tom
Pek).
He testified that he and his fellow employees were
advised by Tom Pek to "personally help (Chiang Yia
Min) in all his personal accounts. He also said that
the opening of the account was done in haste, since
petitioner was in a hurry to have the proceeds of the
remittance credited to his checking account.
Because Reyes was well-known to the officers and
employees of RCBC-Shaw Boulevard, he was
allowed to bring out of the bank the application form,
depositors card, and other forms which required
petitioners signature as depositor. He then filled out
the forms, and brought them to petitioner for signing.
He witnessed petitioner sign the forms. Then he
brought the signed forms, and petitioners passport,
back to the bank, which approved the opening of the
current account upon a comparison of the signatures
on the forms and the passport. This is supported by
documentary evidence.
4. As established by the records, there were five issued
checks: two made payable to Papercon, and three
made payable to cash (these three checks were all
negotiated to Tom Pek). Catalino Reyes testified that
on two separate instances, petitioner asked him to
prepare two of the five checks questioned in this
case, specifically, the check for P700,000.00 and
payable to Papercon, and the check for
P12,700.00, and payable to cash. He witnessed
petitioner study the information typed on the checks,
sign the checks, and hand them over to Tom Pek.
The microfilm copies of these checks were submitted
in evidence. They all bear the signature of petitioner.
5. Confronted with such direct and positive evidence
that he authorized the opening of the account and
signed the questioned checks, it is curious that
petitioner did not take the witness stand to refute

Reyess testimony. He did present as his rebuttal
witness a teller of Metrobank (in which he also
maintained a checking account) who testified that
she had assisted petitioner in some withdrawals with
Metrobank and in these instances it was petitioner
himself, unassisted, who filled out his checks. Thus,
petitioner attempted to show that he prepared
his own checks as a matter of practice. However,
we note that the Metrobank teller testified to checks
issued on December 1989, or long after the herein
questioned checks were issued. It would neither be
fair nor accurate to compare the practice of
petitioner in issuing checks in 1979, when
admittedly he was still unfamiliar with the
English language, with the manner by which he
prepared his checks ten years later.
6. The best witness to counter the testimony of
Catalino Reyes would be petitioner himself,
simply because, based on the statements of Reyes,
the only persons present when petitioner allegedly
instructed Reyes to open the account and signed the
checks were Reyes, petitioner himself, and Tom
Pek. (Tom Pek died during the course of the
proceedings.) Besides, if indeed Catalino Reyes
lied in saying that petitioner instructed the
opening of the account and issued the checks,
we cannot imagine a more natural reaction of
petitioner than wanting to set the record right.
7. Moreover, petitioners signatures on the
questioned check amounts to prima facie
evidence that he issued those checks. By denying
that he issued the said checks it is he who puts into
question the genuineness and authenticity of the
signatures appearing thereon, and it is he who has
the burden of proving that those signatures were
forgeries. No shared of evidence was presented by
petitioner to show that the signatures were not his.
All that this petition relies on insofar as concerning
the authenticity of the signatures is the finding of the
trial court judge that there was a discrepancy
between the signatures on the bank form and
petitioners passport. The Court, however, believes
that since what is at issue here is whether petitioner
issued the questioned checks the essential
comparison should be between the signatures
appearing on the checks and the specimen
signatures on the depositors card. The record is
replete with documents bearing petitioners
signature, among them, his residence certificate,
alien certificate of registration, investors passport,
tourists passport, and the application forms for an
RCBC current account. From our examination of
these records we find no significant disparity
between the signatures on the checks and those
on the abovesaid documents, and will not risk a
finding of forgery where the same had not been
clearly alleged nor proved. Forgery, as any other
mechanism of fraud, must be proven clearly and
convincingly, and the burden of proof lies on the
party alleging forgery.
NEGO - Quevedo B
Camille Umali
ON NEGLIGENCE OF BANK
Petitioner: capitalizes on the following purported
irregularities surrounding the opening of the account:
1. the alleged depositor never appeared at the bank;
2. the person who transacted for the alleged depositor
was not shown to have been authorized for that
purpose;
3. the application form and other documents required to
open the account were brought out of the bank
premises;
4. the application form, when submitted, was not
properly accomplished, but was left blank on most of
the required details.
SC: The arguments are unmeritorious for failure to
show that such irregularities attending the opening of
the account resulted in the unauthorized withdrawal
of petitioners money. The evidence stands
unrebutted that petitioner instructed the opening of
the said account and signed the pertinent
application forms. Quite contrary to petitioners
insinuations of fraud or negligence, the evidence
indicates that the reason why respondent bank
relaxed its rules in handling petitioners application
was because, in addition to having been referred by
a well-known client, petitioner was in a hurry to have
the remittance credited to his account.
OTHER FINDINGS:
1. There is no truth to petitioners contention that he
could not have authorized the opening of Current
Account because he was not yet in the country at the
time. The fact is, by February 7, 1979, his 7-day visa
had already expired and he was plainly an
overstaying tourist, working against time to secure
an investors visa to legitimize his stay in the
Philippines, which explains the haste by which he
ordered the withdrawal of the money and the
opening of the account in RCBC.
2. It also strains credulity that an investor like petitioner
would allow a substantial amount of money to lie
insipid and unproductive in a bank account for six
years before he bothered to check on it. The
complaint was filed with the RTC only on June 29,
1987, or almost two years after his supposed
discovery of the loss of his money.
3. Petitioners claim that he felt no need to check on the
US$100,000.00 because he still had cash at hand
was contradicted by his own testimony that in 1983
and 1984 he could not put up the money to fund a
letter of credit, lost a major client in the process, and
was put out of business.
4. Petitioner wrote the Shaw Boulevard branch of
respondent bank to inquire about the status of his
current account is fundamentally inconsistent with
his position that he had no knowledge of the opening
of the account in that branch.
5. As for Papercon and Tom Pek, upon the finding
that the checks issued to them were in order, and
there being indication that respondent bank colluded
in paying the checks to them for any unlawful cause,
or was otherwise deceived or misled into doing the
same, the presumption lies that they were
holders for value and in good faith.

STATE INVESTMENT HOUSE V IAC, SPS. CHUA (1989)
~chrislao~
FACTS
-New Sikatuna Wood Industries (New Sikatuna, for
brevity) entered into a contract of loan with Chua.
Chua's wife issued three postdated crossed checks
(valued at almost 300K) payable to New Sikatuna.
This loan was subject to the condition "if and when
the deposits were made to back up the checks".
-New Sikatuna sold 11 checks including the said 3
checks at a discount to State Investment House.
State Investment tried to deposit said checks but the
same were dishonored by reason of "insufficient
funds", "stop payment" and "account closed",
respectively.
-State House Investment filed an action for collection
against Spouses Chua. RTC ruled against the
spouses. IAC REVERSED. Hence, this petition.
ISSUE
WON State Investment House is a holder in due course
and therefore not subject to the defense of the
drawer (Spouses Chua) against the payee (New
Sikatuna) due to absence of consideration
HELD
NO. IAC correctly relied on the HELD in Ocampo v.
Gatchalian as regards the effects of crossing a
CONSOLIDATED PLYWOOD INDUSTRIES, INC V IFC LEASING AND ACCEPTANCE CORP (1987)
~apple~
NATURE
Petition for review on certiorari of a decision of the
IAC
FACTS
-Consolidated, a corporation engaged in the logging
business, needed 2 units of tractors for its projects.
-Atlantic Gulf & Pacific Company of Manila knew of
the need and thus offered 2 used tractors to
petitioner through its sister company and marketing
arm, Industrial Products Marketing (the "seller-
assignor").
-Petitioner inspected the tractors while seller-
assignor assured petitioner-corporation that the
"used" Allis Crawler Tractors which were being
offered were fit for the job, and gave the
corresponding warranty of ninety (90) days
performance of the machines and availability of
parts.
-With said assurance and warranty, and relying on
the seller-assignor's skill and judgment, petitioner-
corporation through petitioners Wee and Vergara,
president and vice-president, respectively, agreed to
purchase on installment said two (2) units of "Used"
Allis Crawler Tractors. It also paid the down payment
of Two Hundred Ten Thousand Pesos
(P210,000.00).
-Seller-assignor issued the sales invoice for the two
(2) units of tractors. At the same time, the deed of
NEGO - Quevedo A
Camille Umali
check: the check may not be encashed but only
deposited in the bank; the check may be negotiated
only onceto one who has an account with a bank;
and the act of crossing the check serves as a
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.
-State Investment House's failure to inquire from the
holder, New Sikatuna, the purpose for which the
3 checks were crossed, despite the warning of
the crossing, prevents State Investment from
being considered in good faith and thus it is NOT
a holder in due course.
-Since it is not a holder in due course, it is subject to
personal defenses, such as lack of consideration
between Spouses Chua and New Sikatuna. Under
the facts, the checks were postdated and issued only
as a loan to New Sikatuna, is and when deposits
were made to back up the checks. No such deposits
were made, hence no loan was ever made. The 3
checks were without consideration.
-although State Investment is not a holder in due course,
it doesn't mean that it could not recover on the
checks. The only disadvantage is that it is subject to
defenses as if the instruments were non-negotiable.
sale with chattel mortgage with promissory note was
executed. Simultaneously with the execution of the
deed of sale with chattel mortgage with promissory
note, the seller-assignor, by means of a deed of
assignment, assigned its rights and interest in the
chattel mortgage in favor of the respondent (IFC
Leasing).
-Barely fourteen (14) days had elapsed after their
delivery when one of the tractors broke down and
after another nine (9) days, the other tractor likewise
broke down.
-Vergara informed seller-assignor and asked for
prompt action. The seller-assignor sent to the jobsite
its mechanics to conduct the necessary repairs, but
the tractors did not come out to be what they should
be after the repairs were undertaken because the
units were no longer serviceable.
-Since the tractors were no longer serviceable, Wee
asked the seller-assignor to pull out the units and
have them reconditioned, and thereafter to offer
them for sale. The proceeds were to be given to the
respondent and the excess, if any, to be divided
between the seller-assignor and petitioner-
corporation which offered to bear one-half (1/2) of
the reconditioning cost.
-No response was received by the petitioner-
corporation and despite several follow-up calls, the
seller-assignor did nothing with regard to the
request.

-IFC filed a complaint against Consolidated for the
amount of the PN.
-TC and IAC granted the complaint.
ISSUE
WON the respondent is a holder in due course
HELD: No.
(first of all, the instrument here was determined as
not being a negotiable instrument because of the
lack of the words of negotiability... nevertheless, the
court discussed why the respondent cannot be
considered a holder in the course had the instrument
been negotiable)
-A mere perusal of the Deed of Sale with Chattel
Mortgage with Promissory Note, the Deed of
Assignment and the Disclosure of Loan/Credit
Transaction shows that said documents evidencing
the sale on installment of the tractors were all
executed on the same day by and among the buyer,
which is herein petitioner Consolidated Plywood
Industries, Inc.; the seller-assignor which is the
Industrial Products Marketing; and the assignee-
financing company, which is the respondent.
-Therefore, the respondent had actual knowledge of
the fact that the seller-assignor's right to collect the
purchase price was not unconditional, and that it was
subject to the condition that the tractors sold were
not defective.
-The respondent knew that when the tractors turned
out to be defective, it would be subject to the
defense of failure of consideration and cannot
recover the purchase price from the petitioners.
-Even assuming for the sake of argument that the
promissory note is negotiable, the respondent, which
took the same with actual knowledge of the
foregoing facts so that its action in taking the
SALAS V CA, FILINVEST FINANCE AND LEASING CORP (1990)
~RACH~
NATURE
Petition for review on certiorari
FACTS
-Petitioner Juanita Salas bought a motor vehicle from the
Violago Motor Sales Corporation (VMS) for P58,138.20
as evidenced by a promissory note. This note was
subsequently endorsed to the respondent Filinvest
Finance & Leasing Corporation which financed the
purchase.
-Salas defaulted in her installments allegedly due to a
discrepancy in the engine and chassis numbers of the
vehicle delivered to her and those indicated in the sales
invoice, certificate of registration and deed of chattel
mortgage, which fact she discovered when the vehicle
figured in an accident.
-Filinvest then filed a case for a sum of money against
Salas. RTC ruled in favor of Filinvest and ordered Salas
to pay the plaintiff the sum of P28,414.40 with interest
NEGO - Quevedo B
Camille Umali
instrument amounted to bad faith, is not a holder in
due course, and therefore, subject to all defenses
which the petitioners may raise against the seller-
assignor.
-We subscribe to the view of Campos and Campos
that a financing company is not a holder in good faith
as to the buyer.
-As against the argument that such a rule would
seriously affect "a certain mode of transacting
business adopted throughout the State," a court in
one case stated: It may be that our holding here will
require some changes in business methods and will
impose a greater burden on the finance companies.
We think the buyer-Mr. & Mrs. General Public-should
have some protection somewhere along the line. We
believe the finance company is better able to bear
the risk of the dealer's insolvency than the buyer and
in a far better position to protect his interests against
unscrupulous and insolvent dealers... If this opinion
imposes great burdens on finance companies it is a
potent argument in favor of a rule which will afford
public protection to the general buying public against
unscrupulous dealers in personal property... (Mutual
Finance Co. v. Martin)
-The respondent, a financing company which
actively participated in the sale on installment of the
subject two Allis Crawler tractors, cannot be
regarded as a holder in due course of said note. It
follows that the respondent's rights under the
promissory note involved in this case are subject to
all defenses that the petitioners have against the
seller-assignor, Industrial Products Marketing. For
Section 58 of the Negotiable Instruments Law
provides that "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. ... "
Disposition Petition granted
thereon at the rate of 14% from Oct 2, 1980 until the said
sum is fully paid.
-Both parties appealed to the CA. Imputing fraud, bad
faith and misrepresentation against VMS for having
delivered a different vehicle to petitioner, the latter prayed
for a reversal so that she may be absolved from the
contract.
-CA merely modified ordering the defendant to pay the
plaintiff the sum of P54,908.30 at 14% per annum from
Oct 2, 1980 until full payment.
* Petitioners Arguments
-In the light of the provision of the law on sales by
description which she alleges is applicable, no contract
ever existed between her and VMS and therefore none
had been assigned in favor of private respondent.
-It is not necessary to implead VMS as a party to the
case because VMS was earlier sued by her for "breach of
contract with damages" before RTC Olongapo City. Such
court originally ordered Salas to pay the remaining
balance of the motor vehicle installments; this was later

reversed by the same court ordering VMS instead to
return to Salas the sum of P17,855.70. Such decision is
still pending consideration in the CA.
*Respondents Comment
-Issues and allegations are a mere rehash of those
presented and already passed upon by the CA; judgment
in the "breach of contract" suit cannot be invoked as an
authority as it is still pending in CA.
-Petitioner's liability on the promissory note, the due
execution and genuineness of which she never denied
under oath is, under the foregoing factual milieu, as
inevitable as it is clearly established.
ISSUE
1. WON the promissory note is a negotiable instrument
(which will bar completely all the available defenses of
Salas against Filinvest)
2. WON Filinvest is a holder in due course
HELD
1. YES
Ratio The instrument in order to be considered
negotiable must contain the so-called "words of
negotiability i.e., must be payable to "order" or "bearer".
Under Sec 8 of the Negotiable Instruments Law, there
are only two ways by which an instrument may be made
payable to order. There must always be a specified
person named in the instrument and the bill or note is to
be paid to the person designated in the instrument or to
any person to whom he has indorsed and delivered the
same. Without the words "or order or "to the order of", the
instrument is payable only to the person designated
therein and is therefore non-negotiable. Any subsequent
purchaser thereof will not enjoy the advantages of being
a holder of a negotiable instrument, but will merely "step
into the shoes" of the person designated in the
instrument and will thus be open to all defenses available
against the latter.
Reasoning Requisites under the law have been
complied with:
[a] it is in writing and signed by the maker Juanita Salas;
COMMERCIAL CREDIT CORP V ORANGE COUNTY MACHINE WORKS (1950)
~cha~
NATURE
Appeal from judgment
FACTS
-Orange County Machine Works (OCMW) was in the
market for a Ferracute press. Ermac Company
(Ermac) offered to sell to OCMW a Ferracute press
for $5k (which Ermac would buy from a supplier).
Commercial Credit Corp. (CCC) was asked to
finance the transaction, and CCC agreed to do so
after an assignment of the contract of sale between
OCMW and Ermac was made in favor of CCC.
-before the assignment, Ermac obtained similar financing
from CCC and CCC had some blank forms supplied
to Ermac. One of these forms entitled Industrial
Conditional Sales Contract is the agreement
NEGO - Quevedo B
Camille Umali
[b] it contains an unconditional promise to pay the
amount of P58,138.20;
[c] it is payable at a fixed or determinable future time
which is "P1,614.95 monthly for 36 months due and
payable on the 21 st day of each month starting March
21, 1980 thru and inclusive of Feb. 21, 1983;"
[d] it is payable to Violago Motor Sales Corporation, or
order and as such,
[e] the drawee is named or indicated with certainty.
-It was negotiated by indorsement in writing on the
instrument itself payable to the Order of Filinvest Finance
and Leasing Corporation and it is an indorsement of the
entire instrument.
**This is not a simple case of assignment of credit as
petitioner would have it appear, where the assignee
merely steps into the shoes of, is open to all defenses
available against and can enforce payment only to the
same extent as, the assignor-vendor.
2. YES
Reasoning Filinvest had taken the instrument under the
ff conditions:
[a] it is complete and regular upon its face;
[b] it became the holder thereof before it was overdue,
and without notice that it had previously been
dishonored;
[c] it took the same in good faith and for value; and
[d] when it was negotiated to Filinvest, the latter had no
notice of any infirmity in the instrument or defect in the
title of VMS Corporation.
-Filinvest also holds the instrument free from any defect
of title of prior parties, and free from defenses available
to prior parties among themselves, and may enforce
payment of the instrument for the full amount thereof.
This being so, Salas cannot set up against respondent
the defense of nullity of the contract of sale between her
and VMS.
- Even assuming that there was deception made upon
Salas, this issue cannot be resolved since VMS was
never impleaded as a party. SC: We can only extend our
sympathies to Salas in this unfortunate incident.
Disposition Assailed decision is hereby AFFIRMED.
between Ermac (to sell the press) and OCMW (to
buy the press).
-the said contract stated the ff. (re: deferred payments):
the balance shown to be due hereunder (evidenced by
my note of even date to your order) is payable in 12
equal consecutive installments of $355.09 each, the
first installment payable one month from date hereof.
Said note is a negotiable instrument separate and
apart from this contract, even though at the time of
execution it may be temporarily attached hereto by
perforation or otherwise.
-Latter part of the contract (in a detachable portion):
This contract may be assigned and/or said note may be
negotiated without notice to me and when assigned
and/or negotiated shall be free from any defense,
counterclaim or cross complaint by me.

a dotted or perforated line could be detached from it. At
the time the president of OCMW signed the contract
and note, he raised a question regarding the said
portion below the line but was told that it was just
part of the document.
-OCMW paid $1,512.50 to Ermac. Ermac assigned the
contract and endorsed the note to CCC. CCC gave
Ermac a check for $4,261 in return. At the time the
contract was delivered to CCC, the note had not
been detached. Ermac deposited the check to its
bank and sent the said check to the supplier of the
Ferracute press that would be sold to OCMW.
However, when the check was presented by the
supplier, it was dishonored. The supplier did not
deliver the Ferracute press. Ermac did not pay CCC.
-CCC filed complaint vs. OCMW and Ermac for the
$4,261 it paid for the assignment. Ermac did not pay.
OCMW demands $1,512.50 from Ermac and
declaratory relief from CCC.
-TC: for CCC against Ermac, for OCMW against CCC
(So CCC had no claims against OCMW). CCC not a
holder in due course because (1) it knew at the time
it paid Ermac for the assignment that Ermac did not
own the press it sells, and (2) knew that the press
was not delivered to OCMW.
-Arguments of CCC: (1) the note is negotiable in form,
status not changed because of original physical
attachment to, nor later detachment from, the sales
contract; does not lose status because it was given
in connection with a conditional sales contract; (2)
the character of an otherwise negotiable note is not
destroyed by reason of simultaneous assignment of
a conditional sales contract to the endorsee of the
note; (3) the note is a separate and distinct
instrument negotiable in form; OCMW is estopped
from asserting failure of consideration because it
knew the purpose and legal effect of the note.
-Arguments of OCMW: (1) CCC did not acquire the
instrument in good faith and for value and had notice
of infirmities in the instrument and the defect in the
HAM V MERITT (1912)
~monch~
FACTS
-Eva Merritt executed a note for $300 to Southern
Hospital Assn. The latter assigned it before maturity
to Asa Brunson, who later sold it to E.C. Ham for
$100.
-Ham sued Merritt to recover from the note. Merritt claims
it was obtained from her thru fraud. Ham claims that
he had no notice of such fraud and was therefore a
holder in due course.
ISSUE
WON Ham was a holder in due course
HELD: YES
NEGO - Quevedo B
Camille Umali
title of Ermac; (2) the conditional sales contract and
the attached note must be construed as constituting
a single document. The sales contract is assignable
but not negotiable, so subject to defenses(3) CCC
was an original party to the original transaction so it
took title subject to all equities or defenses existing
in its favor against Ermac.
ISSUE
WON CCC is a holder in due course (and so can recover
from CCC the maker)
HELD: NO.
Ratio. When a finance company actively participates in a
transaction of this type from its inception, counseling
and aiding the future vendor-payee, it cannot be
regarded as a holder in due course of the note given
in the transaction and the defense of failure of
consideration may properly be maintained.
Reasoning. CCC supplied Ermac with the forms and
was twice consulted by telephone as to the impeding
deal. It knew all of the details of the transaction.
Indeed, financing was applied for because Ermac did
not have the money to buy the machinery which
OCMW desired to obtain. Throughout the entire
transaction, CCC dealt chiefly with Ermac, the future
payee, rather than with OCMW, the future maker.
CCC advanced money to Ermac with the
understanding that the agreement and the note
would be assigned or endorsed to it immediately. In
a very real sense, the finance company was a
moving force in the transaction from its very
inception and acted as a party to it. Moreover,
Commercial Credit knew the financial status of
Ermac.
-OCMW never obtained the press for which it bargained
and, as against CCC, there is no more obligation
upon it to pay the note than there is to pay the
installments specified in the contract.
Disposition. Judgment affirmed.
Ratio A large discount does not, by itself, constitute
notice of fraud.
Reasoning
-The court said that while it can be seen that from
Merritts testimony that the note was obtained from
her fraudulently, there was no evidence to show that
Ham had notice of such.
-The fact that the note was sold to Ham for only $100
does not constitute as notice of fraud. Such fact,
standing alone, does not deprive him of protection
from the law. However, the court also notes that
such large discount could be of great weight if was
supported by some other evidence.
Disposition Judgment reversed

PENNOYER V DUBOIS STATE BANK (1926)
~kiyo~
FACTS
-The Wyoming Live Stock Loan Company sold shares of
its capital stock by fraud to Pennoyer, paid for by the
latters two notes payable to the order of the seller,
dated June 21, 1920 and payable 6 months later. On
July 22, the payee negotiated them to Dubois which
paid with its own notes, certificate of deposit (COD),
payable to Wyoming 9 months from date. On Dec.
31, Wyoming negotiated the COD to the First
National Bank of Cody (FNBC), as collateral security
for a loan. After execution and issuance, the maker
learned of the fraud, and refused to pay upon
maturity. Dubois had no notice of the defense of
fraud at the time of issuance, but did at the time it
discharged the COD by payment. Dubois sued
Pennoyer. Pennoyer claimed Dubois was not a
holder in due course; hence the latters personal
defense of fraud was available.
HELD
-Pennoyer cites Sec. 54 arguing that the Dubois was a
holder in due course as it had notice of fraud before
FOSTER V AGUSTANNA COLL. & THEOLOGICAL SEMINARY OF ROCK ISLAND, ILL. (1932)
~athe~
FACTS
-Hopkins executed and delivered to Aurelius-Swanson
(payee) their negotiable instrument secured by mortgage.
Swanson assigned the note and mortgage to Foster not
by indorsement but by assignment in a separate
instrument duly recorded. Foster redelivered the note
and mortgage to Swanson as custodian. Swanson
subsequently assigned the note and mortgage to
Augustanna. Augustanna had no actual knowledge that
the note and mortgage had therefore been assigned to
Foster. Swanson became bankrupt. Foster sued
Augustanna.
NEGO - Quevedo B
Camille Umali
it paid anything on the COD. Dubois is unaffected by
the statute if, when it acquired the notes, it paid the
full amount thereof. When Dubois gave the COD for
the notes , it took the notes for value; if it was
under an obligation to pay the COD when due, its
right to protection as a holder in due course was the
same as if it had paid in money. It may be argued
that upon notice of fraud, Dubois may have
protected itself by enjoining transfer or impounding
the COD. The Court believes that since Pennoyer
put the notes into circulation and contended they
were procured by fraud, bringing proceedings for
such a purpose was his duty. To avoid the effects of
Sec. 54, Dubois was required to prove that the COD
had been negotiated and that it had paid or had
become liable to pay someone other than the payee.
Dubois evidence was sufficient to establish that the
FNBC, to whom the COD was paid, was the
indorsee and holder which is a prima facie showing
that it is a holder in due course.
HELD
-Doctrine of constructive notice does not apply to Foster.
Augustanna had no actual knowledge of the assignment
to Foster. Augustanna was a purchaser of the note not
the mortgage. It is well-settled rule that where a
mortgage given to secure a negotiable PN, the note
imparts its negotiable character to the mortgagee, and
both are bought within the purview of the statutes, and
the mortgage is a mere incident to the note, and an
indorsement of the note automatically assigns the
mortgage, and the attempted assignment of the
mortgage without the transfer of the debt it secures is a
nullity.
-The doctrine of constructive notice is applicable only to
person who is dealing with the land itself, which is not the
case here.

MILES CITY BANK V ASKIN (1947)
~giulia~
FACTS
-George Askin paid his losses in a game of black jack to
JW Clark by 2 checks, one for $150 and another for
$1,000. Each were signed by Askin as drawer,
payable to Clark's order and drawn on the Bank of
Baker, Montana. Askin signed his own name and
inserted the numerals in lead pencil, and Clark filled
the remaining blanks.
-Later, Askin was sued on one of the checks (the date
was changed), but at the time it was negotiated, it
called for $5,000. The court found that a casual
examination of the check disclosed that it had been
changed after having been written. The words and
figures showing the amount are written with a
different pencil than the balance of the writing. There
were obvious signs of erasure of the words and
figures originally occupying such spaces.
-The jury found for the plaintiff. Defendant appealed.
HELD
-The ultimate question of WON plaintiff was a holder in
due course must be determined by the just, such
determination to be based upon its findings as to
whether, (1) the clerk was, in fact materially altered
subsequent to its execution and delivery, and (2) if
so, was such alteration so manifest and visible as to
reasonable impart notice to plaintiff of an irregularity
in the check.
BRONSON V STETSON (1930)
~ajang~
FACTS
-Bronsons agent, Mears, effected the exchange of
Bronsons land in Flint with a farm. Mears,
fraudulently represented that there was an $800
mortgage on the land, which he said, Bronson
should assume. So Bronson made a note made of
even date for $800 payable in three years and
secured by a mortgage. The name of the payee and
the mortgagee were left blank. It was agreed that
Mears was authorized to fill the blanks with the name
of Union Trust Savings Bank.
-Mears received the papers, and turned them over to
defendant Mrs. Stetson. Instead of writing the name
of the bank as payee, Mears wrote Mrs. Stetsons
name. Mrs. Stetson asked him if he had a right to do
so, and he said he had coz he was a notary public.
So Mrs. Stetson paid Mears $800.
There is no question that the papers were fraudulently
obtained by Mears and that Mrs. Stetson knew that
the name on the note was just written by Mears at
the time she paid him the money.
ISSUE
NEGO - Quevedo B
Camille Umali
-Alterations and erasures of written instruments were
presumed to have been made at or prior to the time
of their execution. However, when an alteration or
erasure appears suspicious on its face, it demands
explanation.
-The ruling of the TC evidence a presumption by the
court that plaintiff was a holder in due course. It
should have been considered that Clark was not a
depositor in plaintiff bank and had no account there;
that the check was written in pencil; that the teller
who cashed the check was not acquainted with the
defendant or his signature and he was ignorant of
the nature of Clark's business, associations,
background or financial responsibility; the insistence
of Clark in obtaining the cash immediately; and the
apparent alterations of the check.
-TC erred in refusing evidence offered to prove that in
cashing the check as it did plaintiff bank departed
from the usual course of business adopted and
usually adhered to by the plaintiff.
-For these reasons, Court held that the evidence was
insufficient to sustain the verdict and judgment,
which are contrary to law, and a new trial must be
had to present the decisive issues.
Dispositive The judgment is reversed, and the cause
remanded for new trial
WON Mrs. Stetson is a holder in due course free from all
equities and defenses that could be set up against
her and could thus collect from Bronson.
HELD
NO. At first glance, it can be said that Mrs. Stetson is a
holder in due course. Mears was given parol
authority to fill in the blank. He exceeded his
authority in writing the name of the Mrs. Stetson.
Mears had apparent authority and Mrs. Stetson was
ignorant of the limitation.
-It has been held that the one who entrusts an incomplete
instrument to another is bound by anyone who relies
in good faith on the genuineness of the instrument
although the person entrusted with completing and
delivering the instrument exceeded his authority.
-However, the court turns with reluctance from this.
Harrington Nat. Nank v. Beslin ruled that, in order
however that any such instrument may be enforced,
it must be filled up strictly in accordance with the
authority given and within reasonable time.
Thus, Mrs. Stetson cannot be held to be a holder in
due course. TC reversed.

BLISS V CALIFORNIA CO-OP PRODUCERS (1947)
~glaisa~
FACTS
-The California Co-op Producers was organized to process
and ship agricultural products through the use of the
shipping terminal facilities. Growers of agricultural
products were to be solicited to use the facilities of the
corporation in the marketing of their products. Marketing
contracts were entered into by the cooperative with
many producers.
-Agricultural producers executed non-bearing negotiable
notes, payable to the co-operative, in ten annual
installments, with no acceleration clause. The co-
operative agreed to furnish facilities.
-Shidler, Winchester and Galbreath each executed one of
the notes. The three makers defaulted in the payment of
the first installment.
-Later, while the note is still unpaid, the co-operative
negotiated the notes to Bliss to secure payment of the
co-operatives note, held by Bliss.
-The co-operative, by reason of insolvency and bankruptcy,
was unable to continue to perform its obligation in its
contracts with the producers, including the makers of
the three notes.
-The co-operative defaulted in payment to Bliss. Bliss sued
the makers on their notes.
ISSUE: WON Bliss was a holder in due course.
HELD
-The transferee of an installment note is not a holder in due
course as to any part of the note when the transfer has
been made after the maturity of one or more but less
than all of the installments.
-On the issue of WON Bliss had notice of the co-operatives
failure to pay the first installment, the findings are
unsatisfactory.
-On the issue of the co-operatives defense of failure of
consideration (its failure to perform its obligations under
the contracts), Court said that it is a good defense to an
action on an instrument by one not a holder in due
course
BARBOUR V FINKE (1924)
~tito romy~
NATURE: Petition for Certiorari
FACTS
-In January 11, 1915, Finke issued a negotiable note for
$3,000 payable on or before ten years from the date of
the note. The stated interest rate was six percent per
annum payable annually on January 11 of each year.
The note was likewise secured by a real estate
mortgage.
-In March, 1918, the note was endorsed and the mortgage
was assigned to Barbour. At the time of the
endorsement, a notation on the note stated that interest
thereon was up to October 1, 1917. Barbour at some
point filed an action for the foreclosure of the mortgage.
The lower court ruled for Barbour. But Finke alleged that
Barbour is not a holder in due course based on the fact
that the non-payment of interest amounted to a dishonor
of the note and that Barbour had notice of this as the
same is clearly indicated on the note via the notation.
Such being the case, Barbour is subject to any defense
Finke might have against the original.
NEGO - Quevedo B
Camille Umali
-The Court ordered the case to be retried upon the issue of
notice of non-payment of first installment at the time of
transfer and that judgment be made according to the
views expressed.
TRAYNOR, dissent:
-It is unnecessary to remand the case since the finding and
evidence show that Bliss took the notes without notice
that the first installment had not been paid.
-A holder cannot be a holder in due course as to installments
that were overdue when he acquired the note, but that
he can be a holder in due course as to future
installments, which are not overdue unless their maturity
dates have been accelerated.
-The mere fact that one or more installments of an
installment note are unpaid when the note is negotiated
does not convey knowledge to the transferee of a
defense against the note; nor does it reveal such
knowledge of circumstances that it can be said that the
holder of the note shut his eyes to the facts and in bad
faith sought to avoid the knowledge of a defense.
-A notice of default in the payment of an installment of
principal disconnected from other facts does not prevent
the transferee from being a holder in due course.
-The inquiry may reveal that default is fully explained by
circumstances and it constitutes no warning that the
maker has defense with regard to installments to mature
in the future. Thus, it may appear that prompt payment
has been waived and that the delay with regard to one
or more past due installments does not exceed the
delay in the payment of other installments that have
been paid in the past.
-The rule set forth in the majority opinion that a purchaser of
an installment note who has knowledge that a past due
installment was unpaid when he acquired the note is
put on inquiry and there may be some defenses against
it and cannot be a holder in due course cannot be
reconciled with the provisions of the Uniform Negotiable
Instruments Act.
ISSUE: WON Barbour was a holder in due course of both
the note and mortgage
HELD: YES
Ratio The mere fact that interest due is unpaid, the principal
not being due, does not render the note dishonored. It is
also a settled rule of the jurisdiction that a mortgage is
merely an accident to the note which it secures. Hence
the transfer of the debt secured by the mortgage carries
with it the security. As Barbour is a holder in due course
of the note, she is also a holder in due course of the
mortgage.
-The court just stated that this conclusion is in accord with
the great weight of authority and is in accord with the
spirit and intent of the NIL (there was no discussion on
how the conclusion is in accord with the spirit)
Dispositive Judgment affirmed.

LE DUE V FIRST NATL BANK OF KASSON (1883)
~owen~
FACTS
-Payee of a draft indorsed it to Edison, against whom the
drawer, the defendant bank, had an offset. Edison indorsed
the draft to Jordan on March 8, 1882 4 months and 23
days after the draft became due.
ISSUE
WON the draft is overdue and dishonored
HELD
YES
Ratio Indorsers subsequent to Edison took it subject to the
same offset to which it was subject in his hands.
Reasoning
-The term overdue in a demand bill of exchange (as in this
case) is applied when a bill has come into the hands of
IDAHO STATE BANK V HOOPER SUGAR CO (1929)
~maia~
FACTS Hooper Sugar made a note payable to Wright for
$30,000 (note details: issued on Sept. 5, 1919, payable
in 6 mos.). Wright then indorsed the note in blank on
Sept. 2, 1920 (1 year after). On the same date, he
renewed a personal note that was held by National City
Bank of Salt Lake (NCBSL), also for $30,000. Wright
also forwarded the note made by Hooper to NCBSL
but allegedly for a different purpose
-However, the cashier of NCBSL altered the renewal note
(1) by erasing the name of his bank as payee and
inserting that of a bank in Pocatello, Idaho, (2) by
changing the interest rate from 6% to 7% p.a., and (3)
by adding a recital that the note (issued by Hooper)
was deposited as collateral security for the renewal
note. He then transferred the note to the Pocatello
Bank for $30,000. In Oct. 11, 1920, the Pocatello Bank
sold the 2 notes to Idaho State Bank (plaintiff).
-Idaho State Bank (ISB) now claims as holder of the note
(made by Hooper) from Hooper and Wright, the same
note being the collateral to the renewal note.
ISSUE
1. WON Idaho State Bank may claim on the renewal note
made by Wright
2. WON Idaho State Bank may claim on the note made by
Hooper from Wright as an indorser
HELD
1. NO, but this does not mean that Wright is freed from the
principal obligation which gave rise to the renewal
note.
On alterations on the renewal note made by Wright
Ratio When a mere inspection of the instrument shows that
it has been altered, a purchaser is not a holder in due
course because such note is not regular on its face
Reasoning ISB is not a holder in due course of the
altered renewal note. It follows then that such note was
avoided in the hands of ISB
NEGO - Quevedo A
Camille Umali
the indorser so long after its issue as to charge him with
notice of dishonor, and thus subject it in his hands to the
defenses which the drawer had against it in the hands of
the assignor.
-General rule is that a bill, note or check, payable on
demand, must be presented for payment within
reasonable time, having in view ordinary business
usages and the purposes which paper of that class is
intended to subserve. But, without any explanation of
the reason, this draft which is outstanding nearly 5
months after its date, the trial court is fully justified in
holding it overdue and dishonored when Jordan took it,
so as to charge it in his hands, or the hands of those
who hold under him, with any defense or set-off which
the drawer had against it in the hands of Edison.
Obiter: it is further alleged by Wright (as a defendant) that
not only is IBS precluded from recovery on the altered
renewal note, but that such alteration absolved him
ultimately of the principal obligation for which the
renewal note was given
-the court rejected this contention and said that although
the alteration was indeed material and intentionally
made, there is no finding that Wrights renewal note
was altered with fraudulent intention. While a material
alteration of a note is a defense to an action on the
instrument itself, in order that such an alteration may
be a bar to recovery on the original debt, it must
appear that the alteration was made with fraudulent
intent. Thus, Wright remains liable on the original
obligation to ISB independent of the altered renewal
note.
2. YES
Ratio When Wright indorsed the note and delivered it to
NCBSL after its maturity date, such note as to Wright
became a demand note. As a demand note it did not
become overdue as to Wright until a reasonable length
of time after it was indorsed by him.
Reasoning Next in issue is the liability of Wright as an
indorser of the note made by Hooper. Wright posits
that the note was overdue at the time it reached the
hands of IBS, thus IBS may not be considered as a
holder in due course to such note. On the other hand,
IBS insists that the note was not overdue when
received by it, relying on the provision where an
instrument is issued, accepted, or indorsed when it is
overdue, it is, as regards the person so issuing,
accepting, or indorsing it, payable on demand.
-the interpretation of the above-quoted provision can only
mean one thing: see the ratio above.
-citing the Harvard Law Review: the instrument takes a
new lease of life with respect to an indorser after
maturity, and his equitable defenses are not let in until
a reasonable time after he indorses, although the

paper is apparently overdue. A contract after
maturity has a special maturity of its own, i.e. a
reasonable time after execution, and bona fide
purchasers within that time will be protected from all
equities of the party who signed, even equitable
defenses.
-in this case, when Wright indorsed the note after its
maturity, he gave the note a second maturity date as to
DUNN V OKEEFEE (1816)
~dahlia~
FACTS
J and T Dunn drew a bill of exchange on Ricketts,
Thorne, George & Co. dated June 19, 1813 and due
July 19,1913 for 1000 payable to the order of J.
Sinclair and issued to the payee for value. On June
20, 1813, the payee presented the bill to the drawee
for acceptance but the bill was then dishonored by
non-acceptance . No notice of dishonor by non-
acceptance was given to the drawer. Subsequently
and on July 13,1913, the payee negotiated the bill to
the plaintiff Mary O'Keefe, who had no knowledge of
the prior dishonor by non-acceptance . The drawee
again dishonored the bill. The indorsee immediately
gave notice of dishonor to the drawer. The indorsee
sued the drawer. There was judgment for the
plaintiff.
ISSUE
TRIPHONOFF V SWEENEY (1913)
~bry_sj~
FACTS
-J.W. Sweeney Construction Company drew its check on
the US National Bank of Portland Oregon for USD
2,294.74 payable to the order of DAN MALCHEFF.
The check was drawn and delivered on or about
March 25, 1911 but was POSTDATED APRIL 15,
1911.
-Malcheff negotiated it to TRIPHONOFF before April 15,
1911 who took it for value and in good faith. J.W.
SWEENEY CONSTRUCTION (the drawer) stopped
payment for the check on the ground that Malcheff
(the named payee), an employee of the drawer,
obtained the check by means of false and forged
estimates of work done by him for the drawer. The
check was DISHONORED UPON PRESENTMENT
about APRIL 17, 1911.
-Triphonoff (INDORSER) sued the drawer J.W.
SWEENEY. The latter argued that Triphonoff should
have been put on notice of the infirmity in the
instrument or defect in the tile of MALCHEFF by the
fact that the check was POSTDATED. Counsel for
Sweeney goes as far as arguing that a postdated
check is not a negotiable instrument if taken before
the date on which demand can be made for payment
but is simply an assignment of rights of the payee
and opens the check to all equities and defenses.
NEGO - Quevedo B
Camille Umali
him, namely, a reasonable time, after the transfer. ISB
became such holder within that reasonable time, and
as regards Wright, IBS received the note free from any
equities of Wright founded upon the mere fact that the
note appeared to be overdue.
Disposition Wright is liable to IBS, must honor the note
(since he indorsed it after the maturity, thus effectively
made the note on demand as between him and IBS).
WON the drawer is liable to the indorsee(who had no
knowledge of the prior dishonor) given that the
payee did not give the drawer a notice of dishonor.
HELD
When party holding a bill of exchange receives notice of
its dishonor, he is bound to communicate this to the
drawer. But a bill of exchange is NOT a void security
in the hands of an innocent indorsee who has no
knowledge that the bill has ever been dishonored
because a former holder has omitted to give notice
to the drawer that the bill has ever been refused
acceptance.The drawer is liable to the innocent
indorsee. He issued it in an imperfect state and
cannot justly complain of the neglect of any indorsee
who takes the bill in his state, having no knowledge
of any circumstance to vitiate it, and looking merely
at the names upon it.
ISSUE
1. Whether or not the check in this case is NOT a
negotiable instrument.
2. Whether or not postdating of the check amounts to a
notice of the infirmity on the instrument as to
disqualify the holder from becoming a HIDC
HELD
1. NO. The check is a negotiable instrument. It is full and
complete on its face as it satisfies the requirements
of the law for an instrument to be negotiable. It is
worthy to note that the law does not require an
instrument to be dated. It is settled that the
instrument is not rendered invalid by its antedating or
postdating provided that it is not done for an illegal or
fraudulent purpose.
2. NO. The plaintiff indorsee was not as a matter of law
put into inquiry by reason of the checks being
negotiated prior to day of its date. The law itself does
not proscribe postdating of the check. It is
noteworthy that the drawing of a postdated check is
an everyday occurrence in the commercial world and
the uniform understanding of the parties is that,
when a check is postdated, it is payable on the day it
purports to be drawn even though it be negotiated
beforehand.

HOWARD NATL BANK V WILSON (1923)
~mel~
NATURE
Action by Howard National Bank against Graham Wilson
and another.
FACTS
-Elliot was acting president of the bank and had general
oversight and management of its affairs. He was
also interested in a lumber business conducted as
the W. E. Elliot Lumber Company and acted as its
treasurer.
-He had 2 check accounts with the plaintiff bank, one his
personal account and the other an account as
Treasurer of the lumber company. He also had an
account as treasurer of the lumber company with the
Waterbury Savings Bank.
-From July 6, 1919, to sept 18, 1919, his personal
account with the plaintiff was overdrawn in
increasing amounts until the overdraft amounted to
$14,594.14. an arrangement was entered into by
which the plaintiff made a loan to the lumber
company which was deposited in its account with the
plaintiff, and Elliot transferred $14,750 from this to
his personal account, leaving a balance to his credit
of $155.86.
-On sept 15, Elliot had drawn a check on his personal
account for $10,000 which had not been returned to
the bank when this adjustment was made. To cover
this check when returned, he drew a check to
himself on the Waterbury Bank for a like amount,
which he deposited in his personal account. This
overdrew the lumber companys account at the
Waterbury Bank about $8,700. There was no
evidence that anyone other than Elliot knew of this
situation at the time the note in question was given.
-On the day the note was given, the defendant called at
the plaintiff ank on business which was transacted
with Elliot in the directors room. In the course of the
interview Elliot procured the defendant to sign a note
for his (Elliots) accommodation. No question is
made but that they were false and fraudlent. The
note was executed and Elliot took it out into the bank
and directed the assistant cashier to make a
cashiers check in favor of the defendant for the
amount of the note. Elliot returned with the check
which the defendant indorsed in blank and delivered
to Elliott. The latter deposited the check to the credit
of the lumber company in the Waterbury Bank on
Sept 20. The movement of these checks was so
NEGO - Quevedo B
Camille Umali
timed that want of funds did not appear on the books
of either bank. Elliot paid the interest on the note
indorsed January 1, 1920. he died in the latter part of
January 1920, when for the first time, so far as
appeared, it was discovered that he was insolvent.
-Defendant insists that the plaintiff, being the payee of
the note, is not a holder in due course as a matter of
law.
ISSUE
1. WON plaintiff (being the payee) is a holder in due
course
2. WON plaintiff took the check in good faith
HELD:
1. YES
-That a payee is capable of being a holder in due course
at common law has been held almost without
dissent. This view is confirmed by the definition of
negotiation found in Sec 30 of the act, which
provides that an instrument is negotiated when it is
transferred from person to another in such a manner
as to constitute the transferee the holder thereof. As
said, the remaining sentence of the section, if
payable to bearer, it is negotiated by delivery; if
payable to order, it is negotiated by the indorsement
of the holder completed by delivery was not
intended to include all the ways in which an
instrument might be negotiated, nor to restrict
the comprehensive terms of the preceding
sentence.
2. YES
-Evidence was uncontradicted that Elliot had authority
and was accustomed to approve and direct loans as
this loan was approved and directed, and that the
defendant was a regular customer of the bank.
Assuming that the evidence had the tendency
claimed for it, we are at loss to see how, in the
circumstances, it can be thought that the cashier had
any reason to suspect fraud in the inception of the
note or any wrongdoing in the transaction. The note
was taken in usual course, for full value and without
circumstances calling for or warranting inquiry
respecting the occasion for giving it. This being so, it
cannot be conceived how a reasonable man could
think that the note was taken otherwise than in good
faith.

BPI VS. COURT OF APPEALS
Facts:
Marasigan, who is a lawyer by profession, was a
complimentary member of BECC from February
1988 to February 1989 and was issued Credit Card
No. 100-012-5534 with a credit limit of P3,000.00
and with a monthly billing every 27th of the month
(Exh. N), subject to the terms and conditions
stipulated in the contract (Exh. 1-b). His membership
was renewed for another year and the credit limit
was increased to P5,000.00.
Oftentimes he exceeded his credit limits but this was
never taken against him by the defendant and even
his mode of paying his monthly bills in check was
tolerated. Their contractual relations went on
smoothly until his statement of account for October
1989 amounting to P8,987.84 was not paid in due
time. On November 28, 2989, defendant served
plaintiff a letter by ordinary mail informing him of the
temporary suspension of the privileges of his credit
card and the inclusion of his account number in their
Caution List. He was also told to refrain from further
use of his credit card to avoid any
inconvenience/embarrassment and that unless he
settles his outstanding account with the defendant
within 5 days from receipt of the letter, his
membership will be permanently cancelled. There is
no showing that the plaintiff received this letter
before December 8, 1989.
Confidential that he had settled his account with the
issuance of the postdated check, plaintiff invited
some guests on December 8, 1989 and entertained
them at Caf Adriatico. When he presented his credit
card to Caf Adriatico for the bill amounting to
P735.32, said card was dishonored. One of his
guests, Mary Ellen Ringler, paid the bill by using her
own credit card a Unibankard.
Marasigan filed a case for damages against the bank.
RTC ruled for Marasigans damage claim but
ordered him to pay his obligations.
Issues:
1. WON there was indeed an agreement or
arrangement entered into between the parties
wherein the Bank required Marasigan to issue a
postdated check in the amount of P15K as payment
of his overdue accounts, with the condition that his
credit card will not be suspended?
2. Was the issuance of the check effective payment?
3. Was the bank in bad faith in cancelling
Marasigans card?
NEGO - Quevedo B
Camille Umali
Held:
1. No. We agree with the findings of the respondent
court, that there was an arrangement between the
parties, wherein the petitioner required the private
respondent to issue a check worth P15,000.00 as
payment for the latters billings. However we find that
the private respondent was not able to comply with
this obligation. Clearly the purpose of the
arrangement between the parties on November 22,
1989, was for the immediate payment of the private
respondents outstanding account, in order that his
credit card would not be suspended.
2. No. Settled is the doctrine that a check is only a
substitute for money and not money, the delivery of
such an instrument does not, by itself operate as
payment. This is especially true in the case of a
postdated check. Thus, the issuance by the private
respondent of the postdated check was not effective
payment. It did not comply with his obligation under
the arrangement with Miss Lorenzo. Petitioner
corporation was therefore justified in suspending his
credit card.
3. No. Good faith is presumed and the burden of proving
bad faith is on the party alleging it. This private
respondent failed to do. In fact, the action of the
petitioner belies the existence of bad faith. As early
as 28 October 1989, petitioner could have
suspended private respondents card outright.
Instead, petitioner allowed private respondent to use
his card for several weeks. Petitioner had even
notified private respondent of the impending
suspension of his credit card and made special
accommodations for him for setting his outstanding
account. As such, petitioner cannot be said to have
capriciously and arbitrarily canceled the private
respondents credit card.
It was petitioners failure to settle his obligation which
caused the suspension of his credit card and
subsequent dishonor at Caf Adriatico. He can not
now pass the blame to the petitioner for not notifying
him of the suspension of his card. As quoted earlier,
the application contained the stipulation that the
petitioner could automatically suspend a card whose
billing has not been paid for more than thirty days.
Nowhere is it stated in the terms and conditions of
the application that there is a need of notice before
suspension may be affected as private respondent
claims.

PIERCE V CARLTON (1922)
~eva~
NATURE
From a Judgment for Defendants, Plaintiff Appeals
FACTS
-the action is to recover the balance due on 3 promissory
notes, executed by MJ Carlton and others payable to
Crawford & Ceas, dated Feb.11,1913 and payable
June 1 of 1914,1915 and 1916, with an aggregate
amount $2100.
-on the afternoon of Feb. 11, the notes having been
indorsed in blank by the payees, Pierce bought said
notes for $1800, and without notice or knowledge of
any infirmity affecting the validity of said notes
-in Feb.1913 plaintiff sold and delivered said notes to his
brother, Thos.B.Pierce, for $2100; said Pierce being
also a purchaser for value without notice
-June 1915, plaintiff bought the notes back from his
brother for $2100 and indorsed to plaintiff without
recourse (he didnt want his brother to be involved in
the controversy on the notes)
-Defendants: there was allegation with evidence tending
to show that said notes were procured by false and
fraudulent representations on the part of the payees,
and that plaintiff, not only had full notice and
knowledge of the fraud at the time he first acquired
said notes, but that he had actually aided and
abetted the payees in the fraudulent conduct and
representations by which the note was procured.
-judgment was rendered for the defendants
ISSUE
WON the court erred in the refusal to nonsuit for want of
any evidence to show participation in the alleged
fraud on part of plaintiff.
HELD: NO.
-The principle that one who acquires title from a holder in
due course may recover, though he himself may
have had notice of the infirmity when he acquired the
instrument from such holder, was recognized before
the enactment of this statute (Sec.3040 Negotiable
Instruments ).
-But this rule is subject to the single exception that, if the
note were invalid as between the maker and the
NEGO - Quevedo B
Camille Umali
payee, the payee could not himself, by purchase
from a bona fide holder, become successor to his
rights, it not being essential to such bona fide
holders protection to extend the principle so far
(Calverts Daniel 6th ed. Sec.805). And this exception
is approved by the general current of authority.
-The exception, we think, extends to the agent who acts
for such a payee in reacquisition of the instrument,
or to one who aids and abets the payee in the fraud
by which the instrument is procured.
-There are also decisions which seem to hold that the
exception referred to properly applies to one who,
not being a party or participant in the fraud, has
purchased such a note from the payee with
knowledge or notice thereof, and reacquires the
same from a bona fide holder.
-There is doubt if our statute permits an interpretation
which would apply to the facts presented in these
last cases. The more natural meaning of the
language used would apply the exception to the
payee or other taking part in the fraud or illegality
which rendered the instrument invalid.
-On the facts of the present record we are not called on
to make definite decision on this question for the
reason that his honor, in submitting the second
issue, that as to present plaintiffs ownership in good
faith of the notes, instructed the jury that if present
plaintiff held the notes by indorsement for value from
a bona fide holder, he was entitled to their verdict on
the issue, unless defendants has satisfied them by
the greater weight of the evidence that plaintiff was a
participant in the fraudulent conduct which the note
were secured.
-It is recognized principle in this jurisdiction that a verdict
may be given significance and correctly interpreted
by reference to the pleadings, the facts in evidence,
and the charge of the court. And the plaintiff having
received the full benefit of the position, the refusal of
the court to submit the question in the precise terms
of the issue as tendered is not erroneous.
Dispositive The facts in evidence are fully sufficient to
require that the issues be submitted to the jury, and
that plaintiffs motion to nonsuit was properly
overruled.

LILL V GLEASON (1914)
~jat~
FACTS
-Nelson Gleason (maker) executed and delivered a
negotiable P/N due on Sept.1, 1908, to Peerless
Machinery Co. (payee) for the purchase of stocks in
the said company. The note was accompanied by a
written contract permitting Gleason to return the
stock and receive back his note duly canceled
provided he gives the company prior notice of his
intentions. Gleason gave notice to Peerless but the
note was not returned.
-Why? Because Peerless had indorsed the P/N in blank
before maturity (making the originally order
instrument into a bearer instrument) and left it with
Andale State Bank (bank) as security for money to
be advanced to it by the bank but the bank refused
to make any advancement on the note until it was
indorsed by Michael Lill. So Lill went to the bank and
wrote his name on the back of the note. The bank
then cashed the note. When the note matured
Gleason refused to pay. Upon the banks demand,
Lill paid the note and received it without indorsement
from the bank.
-Lill then filed an action against Gleason in the district
court, which ruled in favor of the latter and held that
Lill was not a holder in due course. Lill appeals.
ISSUE
1. WON Lill is a holder in due course
2. WON the note was discharged by Lills payment
HELD
1. YES.
Sec. 58 NIL:
xxx But a holder who derives his title through a
holder in due course, and who is not himself a
party to any fraud or illegality affecting the
NEGO - Quevedo B
Camille Umali
instrument, has all the rights of such former
holder in respect of all parties prior the latter.
-The order note, having been indorsed by the payee
(Peerless) in blank, became payable to bearer and
negotiable by delivery (Sec. 34 NIL). Thus, when the
note was delivered to the bank, the bank became the
holder thereof in due course. And when the bank
delivered the note to Lill, Lill became the bearer and
holder (Sec.191 NIL). Having derived his title from
the bank, which was a holder in due course, and not
having been a party to any fraud or illegality affecting
the instrument, Lill became possessed of all the
rights of the bank against the maker (Sec.58 NIL).
2. NO.
The general rule is that payment by a party other than the
principal debtor does not discharge parties prior to
the one making the payment, and the payment,
instead of extinguishing the instrument, operates as
a transfer of it to the party paying.
*What is Lills status as a party to the note and what are
his rights as such?
Lill became a party to the note for the accommodation of
the payee (Peerless), and his original status insofar
as liability was concerned, was that of an indorser,
since he did not indicate an intention to be bound in
some other capacity. As an indorser, he thus
became secondarily liable to all parties subsequent
to the payee, in this instance to the bank. The
contract of an indorser for the accommodation of the
payee is wholly independent of that of the maker,
and such indorser, upon making payment, succeeds
to the title and rights of the holder as against the
maker.
Disposition Judgment of district court REVERSED.

FOSSUM V FERNANDEZ HERMANOS (1923)
~kooky~
FACTS
-Charles A. Fossum was the resident agent in Manila of
the American Iron Products Company, Inc., engaged in
business in New York City, while Fernandez Hermanos is
a general commercial partnership engaged in business in
the Philippines
-on Feb 10, 1920, Fossum, acting as agent of AIPCI,
procured an order from Fernandez Hermanos, to deliver
a tail shaft, to be installed on the ship Romulus. It was
stipulated that the tail shaft would be in accordance with
the specifications contained in a blueprint given to
Fossum on or about Dec 18, 1919; and it was further
understood that the shaft should be shipped from New
York in March or April 1920.
-The manufacture and shipment of the shaft was delayed
considerably; it arrived in Jan 1921. Meanwhile AIPCI
had drawn a time draft for $2250, at 60 days, upon
Fernandez Hermanos, for the price of the shaft, and
payable to Philippine National Bank (PNB). It was
presented to Fernandez Hermanos, and was accepted by
it on Dec 15, 1920, according to its tenor.
-The shaft was found not to be in conformity with the
specifications and was incapable of use for its intended
purpose. Upon discovering this, Fernandez Hermanos
refused to pay the draft, and it remained for a time
dishonored in PNB Manila. Later the bank indorsed the
draft in blank, without consideration, and delivered it to,
Fossum, who then instituted this action against
Fernandez Hermanos.
-The TC held, and it is evident, that the consideration for
the draft and for its acceptance by Fernandez Hermanos
has completely failed; and no action whatever can be
maintained on the instrument by AIPCI, or by any other
person against whom the defense of failure of
consideration is available.
ISSUE:
WON Fossum is a holder in due course, such that an
action can be maintained on the instrument
HELD: NO
-Fossum is far from being a holder in due course. He was
himself a party to the contract which supplied the
consideration for the draft, albeit acting in a
representative capacity. Also, he procured the instrument
to be indorsed by the bank and delivered to himself
without the payment of value, after it was overdue, and
with full notice that, as between the original parties, the
consideration had completely failed. Under these
circumstances, recovery on the draft is out of the
question.
-He calls attention, however, to the familiar rule that a
person who is not himself a holder in due course may yet
recover against the person primarily liable where it
appears that such holder derives his title through a holder
in due course.
-there is not a line of proof tending to show that the bank
itself was ever a holder in due course. It was incumbent
NEGO - Quevedo B
Camille Umali
on Fossum to show that the bank was a holder in due
course, and can have no assistance from the
presumption expressed in sec 59 of NIL, to the effect that
every holder is deemed prima facie to be a holder in due
course. This presumption arises only in favor of a person
who is a holder in the sense defined in sec 191 of NIL,
that is, a payee or indorsee who is in possession of the
draft, or the bearer thereof. Under this definition, in order
to be a holder, one must be in possession of the note or
the bearer thereof. (Night & Day Bank vs. Rosenbaum) If
this action had been instituted by the bank itself, the
presumption that the bank was a holder in due course
would have arisen from the tenor of the draft and the fact
that it was in the bank's possession; but when the
instrument passed out of the possession of the bank and
into the possession of Fossum, no presumption arises as
to the character in which the bank held the paper. The
bank's relation to the instrument became past history
when it delivered the document to Fossum; and it was
incumbent upon him to show that the bank had in fact
acquired the instrument for value and under such
conditions as would constitute it a holder in due course.
-Moreover, Fossum personally made the contract which
constituted the consideration for the draft. He was
therefore a party in fact, if not in law, to the transaction
giving origin to the instrument; and it is difficult to see
how he could strip himself of the character to agent with
respect to the origin of the contract and maintain this
action in his own name where his principal could not. An
agent who actually makes a contract, and who has notice
of all equities emanating therefrom, can stand on no
better footing than his principal with respect to
commercial paper growing out of the transaction. To
place him on any higher plane would be incompatible
with the fundamental conception underlying the relation
of principal and agent.
-if the original payee of a note unenforceable for lack of
consideration repurchases the instrument after
transferring it to a holder in due course, the paper again
becomes subject in the payee's hands to the same
defenses to which it would have been subject if the paper
had never passed through the hands of a holder in due
course. The same is true where the instrument is
retransferred to an agent of the payee.
Disposition Decision affirmed
MALCOLM, J., dissenting:
-Sec 58 of NIL provides: ". . . A holder who derives his
title through a holder in due course, and who is not
himself a party to any fraud or illegality affecting the
instrument, has all the rights of such former holder in
respect of all parties prior to the latter." Under the
provisions of this section, Fossum is in exactly the same
situation as PNB would be. He is entitled to all the rights
that pertain to PNB as holder in due course.
-The absence or failure of consideration is not a defense
against a holder in due course, although it is a defense
against a holder not in due course.

ASIA BANKING CORP V TEN SEN GUAN Y SOBRINOS (1923)
~aida~
FACTS
-Asia Banking is a foreign corporation licensed to engage
in banking in Manila. Defendant is a duly registered
partnership indebted to Asia Banking in the sum of
$10,475.51 for and on account of New York draft
which was drawn by Snows Ltd. Asia Banking had
demanded for payment from Ten Sen Guan but the
latter refused to do so.
-February 25, 1920 Defendants ordered from Snows
Ltd. 10 cases of mercerize batiste to be shipped
from New York freight prepaid to Manila.
-When the merchandise arrived in Manila, a draft drawn
by Snows Ltd. against the defendants for the
amount alleged was presented for acceptance to the
defendants. This was done through Asia Banking,
an agent of Snows Ltd. Snows Ltd. had negotiated
the draft with Asia Bankings counterpart in New
York.
-The delivery of the bill of lading and other documents
was refused by Asia Banking until Ten Sen Guan
accepted the draft.
-Ten Sen Guan accepted the draft and received delivery
of the bill of lading and made entry of the goods at
customs.
-When the cases were opened, they were found to
contain burlap and not the batiste ordered by Ten
Sen Guan. So Ten Sen Guan declined to receive
the goods and left them at customs. They then
returned the bill of lading to Asia Banking and
demanded that their acceptance of the draft be
cancelled.
- The lower court found for the defendant.
ISSUE
WON Ten Sen Guan is liable for the amount due
VAN SYCKEL V EGG HARBOR COAL & LUMBER CO. (1932)
~lora~
FACTS
-The plaintiff, Van Syckel purchased 3 promissory notes
differing only in the amount from one Joseph Ginsberg.
-The form and indorsement of the notes were precise with
the following:
$2500
Egg Harbor City, N. J., December 5, 1929.
Four months after date We Promise To Pay The
Order of Max Orocofsky at the Egg Harbor
Commercial Bank, Egg Harbor City, N.J., $2500
And 00 Cts Dollar With Defalcation for Value
Received.
Egg Harbor Coal & Lumber Co.
Arthur Mueller (Signed) Pres.
Kate Mueller (Signed) Pres.
No. 37220 Due Date Apr. 5.
- Reverse side:
Max Orocofsky by J.G., pr. Atty.
(Signed)
Without recourse
NEGO - Quevedo B
Camille Umali
HELD
NO, because Asia Banking is not a holder in due course.
-The evidence presented to prove that Asia Banking was
a holder of the draft for value is not convincing. To
give an authentic account of the transaction, it
should have been established by competent
evidence how Asia Banking acquired the draft. Asia
Banking only presented a local employee of the bank
who testified as to the alleged meaning of certain
entries made in the bank records.
-The trial court also found that the acceptance of the draft
by the defendants was conditional. It was also found
that the plaintiff released and discharged the
defendants from liability upon the draft because of
fraud.
Disposition Judgment affirmed.
STREET [concur]
-It was fraud on the part of Snows Ltd. to negotiate the
draft in question to the New York branch of Asia
Banking.
-This fraud having been set up in the defendants answer
and established by proof, it became incumbent upon
the plaintiff to prove that it occupies the position of
bona fide purchaser of the draft for value and without
notice. This requirement is not met by the
presumption which the law raises in favor of the
holder of a negotiable instrument arising from the
mere possession of the instrument. The plaintiff
must go further and prove that it is such a purchaser.
-The reason for this is that the guilty maker or holder of
an instrument vitiated by fraud of illegality will
naturally seek to put it in the hands of some other
person in order to cut off the defense to which the
instrument is subject.
C.S. Van Syckel, Atty. (Signed)
-Plaintiff claims that the notes were not paid and that the
amounts therein stated were due and owing.
-The makers signature was admitted however, the case is
barren of any proof of the genuineness of the signature
of the payee.
-The lower court ruled in favor of the plaintiff: proofs
showed that the plaintiff was holder of the instrument
and that under Section 59 of the NIL, the duty was cast
upon the defendant to show a defect as follows: every
holder is deemed prima facie to be a holder in due
course; but 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 who he claims acquired the title as a
holder in due course; but the last mentioned rule does
not apply in favor of a party who became bound on the
instrument prior to the acquisition of such defective
title."
-Defendant appealed.

ISSUES
1. WON the defendant has the burden of proof of showing
defect in the instrument.
2. WON plaintiff is a holder in due course.
HELD
1. NO.
-At common law, one who sues upon a written contract is
obliged, in the absence of admission, to prove the
sigNATUREof the defendants before the instrument
can be received in evidence. Similarly, the plaintiff,
when not name in the contract, has always been
required to show the right on which he stands.
-The notes were not payable to bearer, but were order
notes, and title did not pass until indorsed by the
payee. The proof of the sigNATUREof the payee was a
necessary part of the plaintiffs case, unless the
fundamental rule of the common law has been
changed by the NIL.
-There are no statutes changing the law of evidence in this
respect. The NIL was intended as a codification of the
common law rules relating to negotiable instruments,
and is, for the most part, declaratory of the common
law.
-Sec 55 of NIL: the title of a person who negotiated an
instrument is defective within the meaning of this Act
when he obtained the instrument, or any signature
thereto, by fraud, duress, or force and fear, or other
unlawful means, or for an illegal consideration, or when
he negotiates it in breach of faith, or under such
circumstances as amount to a fraud.
-Sec. 59 should be read in the light of Section 55 and the
intervening Sections and should be taken to mean that
proof having been offered of the genuineness of the
makers and payees signatures, the holder is deemed
to be a holder in due course, and the duty of
BEACON TRUST CO. V RYDER (1931)
~marge~
FACTS
-Promissory note for $20k dated March 18, 1929,
payable to Morris Rudnick six months after date, was
purportedly made by Robert L. Ryder. The same
was indorsed in blank by Charles W. Ryder waiving
demand, notice and protest and subsequently
indorsed in blank also by Morris Rudnick and E.S.
Company, Inc. Morris Rudnick, Treas. Before its
maturity, said promissory note was delivered by
Rudnick to plaintiff Beacon Trust Co. for discounting.
-On its due date, PN was protested for nonpayment.
Ryders were notified.
-Ryders denied their signatures on the PN and allege that
there was no consideration and no delivery. They
also allege that there was fraudulent transfer and
insist that plaintiff prove that it is a HIDC.
ISSUE
WON plaintiff may be compelled to prove it is a HIDC
HELD NO.
NEGO - Quevedo B
Camille Umali
proceeding to offer some proof of fraud or defect
specified, in procuring essential signatures, is cast
upon the party alleging it, and, until such proof is
offered, there is no duty upon the holder to prove that
he or some person under whom he claims acquired the
title as holder in due course.
-The Court does not think that it was intended that the
presumption should arise under Section 59, without
proof that the essential names on the front and back of
an order instrument were signatures of the named
persons.
2. NO. The court and the jury had no evidence before them
that the signature upon the back of the note was the
signature of the payee, or that the agent purporting to
sign the same was authorized so to do. It seems that
such proof would be necessary, in view of Sections 16,
19 and 33 of NIL before a presumption would arise of a
valid and intentional delivery.
-Since note obligation do not arise save by the signature of
the maker, it would seem equally to follow that the
signature of the payee by way of indorsement is the
foundation of the rights of holder in due course,
subsequent to the payee. Upon the proof of the
genuineness of the necessary signatures the holders
rights arise as specified in Article 4 of the act, but in the
absence of such proof there was nothing to indicate
that the instruments in suit had been negotiated, or that
the person possessed of the physical paper had title
thereto, or the right to the proceeds thereof.
-A note payable to order is negotiated by the indorsement
of the holder completed by delivery.
-In this case, the holder, prior to the indorsement was Max
Orocofsky. His signature was sufficient indorsement.
There was however, no proof of authority of the person
purporting to act as agent to affix the signature.
Disposition Judgment Reversed.
GenRule: The holder of a negotiable instrument is
deemed prima facie to be a HIDC. No further burden
rests upon him to prove that he or some other
person under whom he claims acquired the title as
HIDC.
XCPT if it is shown that the title of some person who has
negotiated the instrument was defective (i.e.,
negotiation was in breach of faith).
-The burden of establishing that the payees title was
defective was on the Ryders. Failing to sustain this
burden [their testimonial evidence did not convince
the court], they cannot insist that Beacon Trust Co.
prove its prima facie case that it is a HIDC.
-Plaintiff Beacon Trust Co.s right to charge the account
of the payee was not necessarily inconsistent with it
being a HIDC.
-Indifference on the part of the plaintiff as to the outcome
of the action would not tend to show that it was not a
HIDC. Such indifference might result from a
consciousness that there was a good indorser.

FARMERS STATE BANK V KOFFLER (1930)
~anton~
NATURE
Action to recover on a check which payment was stopped
by the drawer.
FACTS
-September 15, 1928: Koffler (defendant) drew a check
on the Farmers and merchants bank if New
England in which he had an account, payable to the
order of Kenneth Davis.
-The consideration was $250, and the check was
intended for that amount. The sum payable was
written in figures $250.00, but in the body it was
th
expressed in Two Hundred and 50/100 Dollars
($200.50).
-Davis indorsed the check, and then the check was lost
or stolen.
-October 1: the check was presented to the plaintiff bank,
which cashed it in the usual course of business. The
bank was acquainted neither with Davis nor the
bearer who presented the check.
-Davis and Koffler learned that the plaintiff had cashed
the check. Koffler notified the drawee bank (Farmers
and Merchants) not to pay the same.
-The check was transmitted by plaintiff Farmers State
Bank in the usual course for collection and
remittance, but the Farmers and Merchants refused
to pay the same pursuant to Kofflers notification.
-In meantime, after Koffler learned that the Farmers State
Bank cashed the check, he gave Davis another one
in lieu of the original.
Defendants Claim
-The instrument was complete and regular upon its face
and had never previously been dishonored.
-Farmers State Bank became the holder of it for value
and before it was overdue.
-The bearer of the check for whom the check was cashed
had a defective title within Sec. 55 of the Negotiable
Instruments Law (NIL).
-The title of the bearer who negotiated the instrument
was defective, pursuant to Sec. 59 of the NIL.
ISSUE
1. WON the bearer was a holder in due course.
2. WON Farmers State Bank had the burden to prove it
took the instrument in good faith.
HELD
1. YES
-Koffler disregarded the last sentence of Sec. 59 of the
NIL.
NEGO - Quevedo B
Camille Umali
Sec. 59.Every holder is deemed prima facie to be
holder in due course; but 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 other person under whom he claims
acquired the title as a holder in due course. But the
last mentioned rule does not apply in favor of a
party who became bound on the instrument prior
to the acquisition of such defective title.
-Here there is no defect n the title so far as the maker is
concerned. The action is not brought against Davis
to charge him as indorsee. It is brought against the
defendant as maker. Koffler became bound to on the
instrument at the time he delivered it to Davis. Davis
indorsed the instrument (at the time he delivered)
and made it payable to bearer.
-Koffler has no defense against Davis. Koffler is
interposing a defense which might have been
available to Davis only.
-The check was in all aspects regular except for the
discrepancy between the figures indicating the sum
payable and its statement in writing. There was
nothing about it to challenge the attention of the
plaintiff when it was cashed except this discrepancy.
-Plaintiff naturally assumed that the bearer was Davis.
When the check was presented, the bearer turned to
the desk for that purpose and made the
indorsement.
-There was nothing suspicious which would charge the
bank with notice of a defect in title or show lack of
good faith.
-As to the amount, the one in words controls in instances
of discrepancy, unless the words are ambiguous.
2. NO
-Sec. 59 considered as a whole does not have the effect
of shifting to the plaintiff the burden of proving that
he is the holder in due course of the note on which
he sues merely by a showing on the part of the
defendant that the title to the instrument was
defective as against some intermediate indorsee.
-The fraud in putting a note in circulation which will
operate as a defense or charge the burden of proof
must be a fraud against the defendant.
-It is where the fraud is done as to the defendant or
maker, and not where it is done as to the payee
or some intermediate holder or party to the
paper.
Disposition Amount is reduced to accord with the sum
payable. Judgment is affirmed against Koffler.

COMMERCIAL BANK OF LA FAYETTE & TRUST CO. V BARRY (1934)
~jonas~
NATURE
Appeal from judgment of lower court
FACTS
-J.C. Barry, Trustee, executed demand notes payable to
the order of the Bank of Lafayette & Trust Company,
of which he was president. These notes were issued
in transactions whereby the bank purchased its own
stock from stockholders who wished to dispose of
them. The understanding was that Barry would not
be personally liable on the notes but that the notes
would be paid out of the proceeds of the resale and
from dividends.
-The Bank of Lafayette & Trust Company sold all its
assets, including the Barry note for $8,711 being
sued on, to the plaintiff, the Commercial Bank of
Lafayette & Trust Company. The note was not
indorsed by the payee bank to the plaintiff bank.
-Plaintiff contends that it acquired the note for valuable
consideration before maturity, & hence is a holder
against whom prior equities will not avail. Thus, the
bank objected to the offer of any evidence by the
defendant in support of his defense.
NEGO - Quevedo 4
Camille Umali
ISSUE
WON plaintiff bank is a holder in due course
HELD
NO
Ratio There having been no negotiation of the note sued
on, because it was never indorsed by the payee; it is
immaterial whether plaintiff acquired the note prior to
its maturity. It follows that plaintiff cannot be
regarded as a holder in due course, & the instrument
sued on is subject to the same defenses as if it were
non-negotiable. The defense of want of
consideration is therefore available.
Reasoning At common law, under the law merchant, &
independently of the Negotiable Instruments Law, a
transferee of a note payable to order could not & did
not obtain a legal title thereto, except by
endorsement of the payee, and a holder without
such endorsement took it subject to all the equities
vested in prior parties.
Disposition Judgment appealed from is affirmed.

CHAPTER 4: DEFENSES AND EQUITIES
MURRAY V THOMPSON
136 Tenn. 118, 188 S.W. 378, LRA, 1817B 1172 (1916)
~ice~
FACTS
SUBJECT: Bil of Exchange-Check
MAKERS: Brick company
PAYEE: Murray
SUBSEQUENT INDORSEMENTS: Father of Murray
sold to Thompson.
-Murray received a note from a brick company in
satisfaction to his claim for damages worth
$1,750 because of personal injuries. It was
payable on June 1, 1915 because he was still a
minor. On October 16, 1914, W.A. Murray, his
father, with the consent of the minor, sold the
note to Thompson. He indorsed the name of his
son without apprising Thompson that he himself
was not the payee. The proceeds were deposited
to the account of Murray. It was invested in a
saloon business and was lost. There was no
actual fraud on the part of Murray in the
transaction with Thompson.
-Murray wanted to disaffirm and recover.
ISSUE
WON an infants indorsement is void or voidable
HELD: Voidable.
Ratio Sec. 22. Effect of indorsement by infant or
corporation.-The indorsement or assignment of
NEGO - Quevedo 2
Camille Umali
the instrument by a corporation or by an infant
passes the property therein, notwithstanding that
from want of capacity, the corporation or infant
may incur no liability thereon.
-The statement that the infant passes property
therein entails that the contract of indorsement is
not void and that his indorsee has the right to
enforce payment from all parties prior to the
infant indorser. The incapacity of the minor
cannot be availed of by the prior parties.
-It was not intended to provide that the indorsee
should become the owner of the instrument by
title indefeasible as against the infant, or to make
the act of indorsement an irrevocable one. The
law would not want to deprive the infant of the
right to reinvest in himself the title to the
instrument against a holder who had knowledge
of the indorsers infancy.
-The common-law rule is that the purchaser and
indorsee of such a note is not a bona-fide holder
as against an infant indorser, and that the latter
may disaffirm and recover the note from the
possession of the former, who takes with
constructive notice of the incapacity. This means
that the infant could disaffirm and recover
Disposition: Court of Civil Appeals reversed while
the chancellor is affirmed.

RODRIGUEZ V MARTINEZ
5 Phil 67 (1906)
~rean~
FACTS
SUBJECT: promissory note dated Oct. 17, 1902, for
4,000 Mexican pesos
Signed by Martinez, payable to one Montalvo.
-Montalvo, for value received, sold and transferred the
said PN to Rodriguez before maturity. Rodriguez
received the same w/o notice of any conditions
existing against the note. Rodriguez, before
having the note, went to Martinez and asked him
in respect thereto, and was informed by him that
the note was good and that he would pay the
same at a discount; and that the note was
delivered by Martinez to said Montalvo in
payment of the gambling debt which Martinez
owed Montalvo. This note was presented to the
court as evidence of that debt without the stamp
required by law, and no stamp had ever been
attached thereto. After the trial Rodriguez offered
to put the necessary stamp on the note, and
tendered such stamp.
ISSUE
WON defendant Martinez is liable to pay Rodriguez
on the instrument.
HELD: YES
-SC did not discuss whether the game at which this
debt was incurred is a prohibited game or not. In
view of the fact that the judgment of the court
below contains no finding as to the name or
nature of the game, SC applied A1277 of CC: the
consideration of the contract must be presumed
to be lawful and valid until the contrary is proved;
and without considering as we have said these
questions which we do not think necessary to
discuss for the purposes of this decision, yet
there are other grounds upon which this case can
be decided.
-From the facts set out in the judgment of the court
below, plaintiff Rodriguez acquired the ownership
of the note in question by virtue of its
indorsement, he having paid the value thereof to
its former holder. He did so without being aware
NEGO - Quevedo 3
Camille Umali
of the fact that the note had an unlawful origin,
since he was not given notice, as the court found,
of any conditions existing against the note.
Furthermore, he accepted it in good faith,
believing the note was valid and absolutely good,
and that defendant Martinez would not repudiate
it for the reason that Martinez, had assured him
before the purchase of the note that the same
was good and that he would it at a discount.
Without such assurance from Martinez we can
hardly believe that Rodriguez would have bought
the note. It is thus inferred from the fact that he,
Rodriguez, inquired from the defendant about the
nature of the note before accepting its
indorsement.
-These facts sufficiently show that Rodriguez bought
the note upon the statement of Martinez that the
same had no legal defect and that he was
thereby induced to buy the same by the personal
act of Martinez. In view of this, Martinez can not
be relieved from the obligation of paying
Rodriguez the amount of the note alleged to have
been executed for an unlawful consideration. If
such unlawful consideration did in fact exist,
Martinez deliberately and maliciously concealed it
from Rodriguez. Therefore, to hold otherwise
would be equivalent to permitting Martinez to go
against his own acts to the prejudice of
Rodriguez. Such a holding would be contrary to
the most rudimentary principles of justice and
law. Par. 1, Sec. 333 of Code of Civil Procedure,
applicable to this case, provides as follows:
"Whenever a party has, by his own declaration,
act, or omission intentionally and deliberately led
another to believe a particular thing true, and to
act upon such belief, he can not, in any litigation
arising out of such declaration, act, or omission,
be permitted to falsity it."
Disposition Judgment of lower court is reversed.
Defendant Martinez is ordered to pay to the
plaintiff Rodriguez the sum of 4,000 pesos,
Mexican currency, or its equivalent in Phil.
currency, with legal interest at 6 % p.a.

GLUCKMAN V DARLING (1914)
85 N.J.L. 457, 89 Atl. 1016 (1914)
~yella~
FACTS
SUBJECT: Promisory note
MAKER: Charles Flynn
PAYEE: Balene & Max
INDORSEE: H.L. Darling
HOLDER FOR VALUE: Isaac Gluckman
-Balene & Max were about to sell to Charles Flynn
some real estate and were to take in part
payment therefore notes made by Flynn and
indorsed by defendant. When Balene & Max
requested the defendant to be present at the
transfer and questioned him about the notes, he
attended and examined them and said,
Everything is all right. The notes were then
accepted on account of the purchase price of the
property, and the one in suit subsequently
passed by indorsement, for a valuable
consideration, to the plaintiff.
NEGO - Quevedo 4
Camille Umali
-Defendant at the trial denied his signature as
indorser, insisiting that it was a forgery. Court
denied defendants motion for nonsuit
ISSUE
WON defendant is stopped from alleging forgery
HELD: YES
-It is true that silence and acquiescence alone does
not estop a defendant in a suit upon an alleged
forged instrument from proving the forgery, where
the plaintiff had not been prejudiced or damaged
thereby. But where the holder of a note has been
willfully misled as to the genuineness of an
indorsement thereon by one who purports to be
the indorser and sustains damage or is
prejudiced thereby, the alleged indorser will be
stopped from denying the validity of the
signature.
Disposition Judgment affirmed.

STRADER V HALEY
216 Minn. 315, 12 N.W. (2d) 608 (1943)
~javi~
FACTS
-Haley and his wife lived with plaintiff Strader.
Between July 11, 1936 and June 14, 1941, 69
checks were negotiated by Haley. Strader
claimed that Haley forged her name as drawer for
2 checks and as indorser in a total of 57 checks.
Checks varied amounts. Park Recreation Parlor,
Luz, Easlinger, Liberty State Bank were those
who cashed the checks.
-Plaintiff claimed she never made such indorsements
or signed as drawer.
-Plaintiff brought separate actions against Haley,
parties who were alleged to have cashed checks
for Haley and Liberty State Bank.
-Defense claimed that the checks were indorsed by
plaintiff herself, that she delivered them to Haley
with instructions to cash them, to purchase
supplies, and return the change to her.
-TC said that there was no finding that plaintiff
authorized Haley to sign her name on any check.
TC also said that plaintiff received from Haley all
the proceeds of the checks with knowledge that
such proceeds came from the checks. TC found
that plaintiff had ratified Haleys actions and
conduct in cashing the checks. Plaintiff appealed
ISSUE
WON plaintiff is liable for Haleys acts by ratification
HELD: YES
*Court first determined WON precluded in sec.23 of
the NIL includes ratification (in this case receiving
proceeds of the checks)
-precluded includes ratification. NIL is based largely
on the English Bills of Exchange Act. The English
law contains a proviso that nothing in this
section shall affect the ratification of an
unauthorized signature not amounting to a
forgery. This proviso was not included in the NIL
but a footnote was added that a forged signature
may be ratified. The dropping of such proviso did
not indicate any intention of changing the
meaning adopted from the English law.
Established rule was that an unauthorized
NEGO - Quevedo 5
Camille Umali
signature not amounting to forgery could be so
ratified.
-SC concluded that the framers of the NIL intended
that under the act, the same as under the prior
law, a party may be precluded by ratification.
*case had a discussion on WON precluded was
equivalent to estoppel as some authors
conclude. However the Court said that although
precluded denotes the consequence of an
estoppel, it is not equivalent and its meaning
should not be so limited because 1)it is not the
intention of the framers; 2) it is opposed to the
prior law which NIL adopted.
*Court then determined WON a forgery may be
ratified
-By a forgery is meant an unauthorized signature on
an instyument or a material alteration thereof in
violation of a criminal statute. Rule is that an
unauthorized signature on a note, check or other
instrument under circumstances not constituting
the crime of forgery may be ratified.
-in the instant case, there was no forgery committed
as an essential element, the intent to fraud, was
not proven.
*WON plaintiff ratified acts of Haley: YES
-where the principal accepts and retains the benefits
of an unauthorized act of an agent with full
knowledge of all the facts, he thereby ratifies the
act.
-in the instant case, the evidence sustains the finding
that plaintiff received the proceeds of the checks
in cash and with full knowledge of all the facts.
This was proven by: proceeds of the check were
definitely identified and traced; corroboration of
Haleys wife; the fact that Strader did not
complain to her attorneys that she did not receive
any checks, which was her usual routine.
-Court concluded that plaintiff ratified all the
unauthorized signatures in these cases; that by
reason of such ratification she is precluded from
setting up the fact that her signatures were
unauthorized in the actions against Haley.
Disposition affirmed

SAN CARLOS MINING CO, LTD. V
BPI, CHINABANK CORP (1933)
[place citation here]
~brian b~
FACTS
-Plaintiff corporation is organized under Hawaiian law
and is authorized to engage business in the
Phils. (Manila)
-The business in the Phils. was handled by Alfred
Cooper, its agent (under GPA) w/ authority of
substitution. The principal employee in the Manila
office is Joseph Wilson who also has a GPA but
w/out substitution. Before Cooper left in 1926, he
gave a GPA to Newland Baldwin and at the same
time revoked Wilsons GPA relative to dealing
with BPI, a bank where plaintiff has an account.
-After a year, Wilson, conspiring w/ Alfredo Dolores, a
messenger-clerk in Plaintiffs Manila office, sent a
cablegram to the company in Hawaii requesting a
telegraphic transfer of $100K to China Banking
Corp. (CBC), where plaintiff also has an account.
-After receipt of the money, CBC sent an exchange
contract to plaintiff offering P201K (current rate).
On this contract was forged the name of Baldwin.
It also contained a request for a certified check
from CBC upon receipt of the money.
-A managers check on CBC for P201K payable to
plaintiff was receipted for by Dolores. W/c check
was deposited to BPI by the following
indorsement:
For deposit only with BPI, to credit account of
(plaintiff).
By
(Sgd.) NEWLAND BALDWIN
For Agent
This endorsement was spurious.
-BPI credited plaintiffs account for P201K and passed
the cashiers check through the clearing house,
where it was paid by CBC.
-The same day, BPI received a letter, purporting to be
signed by Baldwin, directing that P200K in bills of
various denominations be packed for shipment
and delivery the next day. The next day, Dolores
witnessed the counting and packing of the money
then he gave a check, purporting to be signed by
Baldwin, for P200K. He was also charged P1 for
the service wherein he also came up w/ another
check for P1, again purporting to be signed by
Baldwin. (This practice of withdrawing money for
shipment was frequent for plaintiff but never so
large an amount and under the sole supervision
of Dolores.)
NEGO - Quevedo 6
Camille Umali
-Dolores then delivered the money, in plaintiffs office,
to Wilson where he received his P10K share.
Shortly thereafter, the crime was discovered, and
upon BPI refusing to credit plaintiff with the
amount of the 2 forged checks (P200K+P1),
plaintiff sued BPI and CBC.
-TC absolved both defendants.
ISSUES
1. WON CBC is liable
2. WON BPI is liable
HELD
*SC, first and foremost, declared that the falsity of
Baldwins signatures is beyond reasonable doubt.
1. NO. A bank that cashes a check must know to
whom it pays. In connection with the cahiers
check, this duty was therefore upon BPI, and
CBC was not bound to inspect and verify all
endorsements of the check, even if some of them
were also depositors in that bank. It had a right to
rely upon BPIs endorsement when it gave the
latter bank credit for its own cahiers check
2. YES. It is an elementary principle both of banking
and the NIL that a bank is bound to know the
signatures of its customers; and if it pays a
forged check, it must be considered as making
the payment out of its own funds, and cannot
ordinarily charge the amount so paid to the
account of the depositor whose name was
forged.
-The bank in the case at bar was neither a gratuitous
bailee (as contended by BPI) nor an intermeddler
bank (as contended by plaintiff). Their relation is
that of depositor and banker, creditor and debtor.
-The bank paid out its money because it relied upon
the genuineness of the purported signatures of
Baldwin. These, they never questioned at the
time its employees should have used care. In
fact, even today the bank represents that it has a
belief that they are genuine signatures.
-The signatures to the checks being forged, under
Sec. 23, NIL, they are not a charge against
plaintiff nor are the checks of any value to the
defendant. The proximate cause of the loss is
BPIs negligence.
Disposition Judgment modified affirmed as to CBC,
reversed as to BPI.

PHIL. NATL BANK V QUIMPO
G.R. No. L-53194; Gancayco; March 14, 1988
~mini~
FACTS
-Francisco S. Gozon II, a depositor of the Caloocan
Branch of PNB, went to the bank accompanied by his
friend Ernesto Santos whom he left in the car while he
transacted business in the bank.
-Santos took a check from Gozons checkbook, filled
it up for the amount of P5T, forged the signature of
Gozon, and encashed it in the bank on the same day.
Upon receipt of the statement of account from the
bank, Gozon asked that the amount of P5T be
returned to his account as his signature on the check
was forged but the bank refused.
-Santos was apprehended by the police and he
admitted that he stole the check of Gozon. Gozon
filed the complaint for recovery of the amount of P5T
against the bank in the CFI Rizal.
-CFI ruled in favor of Gozon. Bank then filed petition
for review on certiorari before SC.
ISSUES
1. WON PNB was negligent in encashing the forged
check without carefully examining the signature
therein
2. WON Gozon is precluded from setting up the
defense of forgery or want of authority (since it is his
own negligent act of leaving the checkbook in Santos
hands that is the proximate cause of the loss)
The Lawphil Project -Arellano Law Foundation
NEGO - Quevedo 7
Camille Umali
HELD
1. YES
Ratio A bank is bound to know the signatures of its
customers; and if it pays a forged check, it must be
considered as making the payment out of its own
funds, and cannot ordinarily change the amount so
paid to the account of the depositor whose name was
forged. This rule is absolutely necessary to the
circulation of drafts and checks, and is based upon
the presumed negligence of the drawee in failing to
meet its obligation to know the signature of its
correspondent. If the paper comes to the drawee in
the regular course of business, and he, having the
opportunity ascertaining its character, pronounces it
to be valid and pays it, it is not only a question of
payment under mistake, but payment in neglect of
duty which the commercial law places upon him, and
the result of his negligence must rest upon him.
2. NO
-The act of Gozon 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. Gozon could
not have been expected to know that 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.
Disposition Petition is DISMISSED for lack of merit.

PRICE V NEAL
3 Burr. 1354 (1762)
~ricky~
FACTS
-A bill for 40 pounds (L40) was purportedly drawn by
Benjamin Sutton (drawer) against John Price
(drawee) in favor of Rogers Ruding (payee). It
appeared from the bill that it was indorsed to
Anthony Topham, then Hammon and Laroche
and finally, for a valuable consideration, to
Watson and Son whose representative, Edward
Neal, received it. Neal gave notice to Price. On
the day it was due, Price sent his servant to Neal
to pay the L40 and take up the bill.
-A second bill for L40 was again purportedly drawn by
Sutton (drawer) against Price (drawee) in favor of
Ruding (payee). It appeared from this bill that it
was indorsed by Ruding to Watson and Son. This
second bill was accepted by Price upon
presentment by writing on it: Accepted John
Price. The bill being accepted, it was indorsed
by Neal for a valuable consideration and left at
Prices bankers for payment. It was paid upon
Prices order.
-Unfortunately for Price, both these bills were actually
fakes. They were done by a certain Lee who was
later hanged for the crime of forgery.
-Wanting to recover the amount he paid, Price sued
Neal. It was proven that Neal acted innocently
and bona fide, without any suspicion of the
forgeries and that he paid the whole value of
those bills. But the jury found a verdict for Price.
ISSUE
WON Price may recover from Neal the money he paid
on the two bills.
NEGO - Quevedo 8
Camille Umali
HELD: NO.
Ratio Price cannot recover the money paid from Neal
because the latter received it upon a bill of
exchange indorsed to him for a fair and valuable
consideration, which he had bona fide paid,
without the least privity or suspicion of any
forgery.
Reasoning Here was no fraud: no wrong. It was
incumbent upon Price (drawee) to be satisfied
that the bill drawn upon him was the drawers
hand, before ha accepted or paid it. It was not
Neals duty to do so. Notice was given upon Price
of a bill drawn upon him; and he sends his
servant to pay and take it up. The other bill he
actually accepts.
-It was a considerable time after payment before Price
found they were forged and the forger was
already to be hanged. He made no objection at
the time he paid them. Whatever neglect there
was, it was on his side.
-Neal had no reason to doubt the second bill after
Price, without any scruple or hesitation, paid the
first. Neal also paid the whole value bona fide. It
is a misfortune which happened without Neals
fault or neglect. Even if there was no neglect on
the part of Price, there is no reason to throw off
the loss from one innocent man to another
innocent man.
Disposition Postea1 delivered to defendant.
1 Blacks Law Dictionary: In the common-law practice, a formal statement, indorsed
on the nisi prius record, which gives an account of the proceedings at the trial of the
action. The term nisi prius means the court in which the cause was tried to a jury,
as distinguished from the appellate court. [So it appears that in common-law
practice, the victor will be entitled to a formal statement of the proceedings. Probably
so he could use it to prove his acquittal or for execution of his claim.]

FIRST NATL BANK OF PORTLAND V U.S. NATL BANK OF PORTLAND
100 Ore. 264, 196 Pac 547, 14 ALR 470 (1921)
~joey~
FACTS
SUBJECT: 18 forged checks
DRAWER: Willamette Iron & Steel Works
DRAWEE: First National Bank of Portland
PAYEES: Rose and Shea, separately
INDORSEES: various merchants United States
National Bank of Portland
-Rose and Shea confederated to obtain 18 blank
checks bearing the lithographed signature of Ball,
president of Steel Works, and forge therein the
signature of Insley, secretary-treasurer.
-The checks were negotiated by the two to various
merchants, all of whom deposited the checks in
their accounts in the United States National
Bank.
-Defendant bank collected from drawee/plaintiff bank.
-Forgery was discovered and drawee was
immediately notified.
-Plaintiff bank wants to recover from defendant bank
on the theory that (1) the latter was negligent in
not detecting the forgery (apparently, drawer also
had a checking account in defendant bank, so
they should have been aware of the required
signatures), and (2) even if not negligent, the
indorsement of the checks and presentment for
payment, followed by actual payment, oblige the
defendant to refund.
NEGO - Quevedo 9
Camille Umali
ISSUE
WON defendant bank is liable to plaintiff bank
HELD: NO
-GEN RULE: Where a holder for value in due course
presents to the drawee a bill of exchange to
which the name of the drawer has been forged,
and the drawee pays the instrument, the holder
and drawee alike ignorant that the signature of
the ostensibly drawer was forged, and it is
subsequently discovered that the signature of the
drawer was forged, the drawee cannot recover
payment made to the holder.
-EXCEPTIONS: This defense is not available to a
holder who (1) is guilty of bad faith, or (2) has
been negligent.
-Was the defendant negligent? NO. There was
nothing upon the face of any of the checks to
excite suspicion, and it is not claimed that any of
the 18 merchants knew or had any reason to
suspect the checks were forgeries.
-The fact that the defendant had in its files the
genuine signature of a drawer might, if there are
other circumstances tending to show negligence
be considered in determining whether the
defendant was negligent; but it cannot be said
that the failure to compare the signatures was, as
a matter of law, negligence on the part of the
defendant.
Disposition Judgment affirmed.

PHIL. NATL BANK V NATL CITY BANK OF NY and MOTOR SERVICE CO., INC.
63 PHIL 711; RECTO; 1936
~chriscaps~
FACTS
-Unknown person negotiated w/ Motor Svc the checks
in payment for tires purchased fr Motor Svc,
purporting to have been issued by Pangasinan
Transport Co. against PNB and in favor of Intl
Auto Repair Shop.
-Said checks were indorsed by unknown person at
the back, Motor Svc believing that the signatures
of Klar (Manager and Treasurer of Pangasinan
Transport) were genuine.
-Checks were indorsed for deposit by Motor Svc at
the National City Bank of New York and Motor
Svc was credited w/ the amounts.
-Checks were cleared and PNB credited the National
City Bank of New York for the amounts, believing
that the signatures of the drawer were genuine,
that the payee is an existing entity and the
indorsements are regular.
-PNB found out that the purported signatures of Klar
were forged. It demanded from Motor Svc the
reimbursement of amounts for w/c it credited the
National City Bank and for w/c the National City
Bank credited Motor Svc.
-Motor Servic refused to reimburse. Pangasinan
Transport refused to have proceeds deducted
from their deposit.
ISSUE
WON PNB has right to recover from National City
Bank
HELD: YES
-Acceptance is unnecessary in so far as bills of
exchange payable on demand are concerned
(e.g., checks).
NEGO - Quevedo 10
Camille Umali
-A check being payable immediately and on demand,
bank can fulfill its duty to depositor only by paying
the amount demanded. The holder has no right
to demand from bank anything but payment, and
the bank cannot do anything but pay.
-There is however, nothing w/c prohibits presentation
of checks for acceptance before they are paid.
Where a check is certified by the bank on w/c it is
drawn, certification is equivalent to an
acceptance. The bank accepts if it chooses.
-The purpose of certification is to import strength to
the paper by obtaining acknowledgment from the
certifying bank that the drawer has sufficient
funds.
-In this case, there was payment but no acceptance
nor certification.
-To entitle the holder of forged check to retain the
money obtained, he must be able to show that
the whole responsibility of determining validity of
the signature was upon drawee.
-The drawee of a check who is deceived by forgery of
drawers signature may recover payment, unless
his mistake has placed an innocent holder of
paper in a worse position than he could have
been in if the discovery of the forgery had been
made on presentation.
-The appellant in purchasing the papers from
unknown person w/o making inquiry, acted
negligently and contributed to the appellees
constructive negligence in failing to detect the
forgery.

REPUBLIC V EQUITABLE BANKING CORP and REPUBLIC OF THE PHIL V. BPI
10 SCRA 8; Concepcion; Jan 30, 1964
~del~
FACTS
[BPI case]
-Jacinto Carranza asked the Corporacion de los Padres
Dominicos to cash 24 treasury warrants from which
encashment his wife expected to earn a sort of
commission.
-The Corporacion accommodated Carranzas request
since the latter was a trusted former employee but
subject to certain conditions:
a) that the warrants be deposited with BPI;
b) that the actual payment of the value of the warrants
would be made only after the same had been duly
accepted and cleared by the Treasurer and the
proceeds thereof duly credited to the BPI account of
the Corporacion.
-Said conditions were met and deposited with BPI who
accepted the warrants subject to collection only
and with each of them (warrants) bearing the
indorsement of the respective payee and that of the
Corporacion.
-BPI presented the warrants for payment to the drawee
(the Government) through the Clearing Office and
upon clearing, was paid by the Treasurer.
-BPI then credited the proceeds to the Corporacions
account, which was then withdrawn by the
Corporacion.
-The Treasurer returned 3 of the warrants to the Central
Bank on the ground that those were forged and
then demanded that the value of said warrants be
charged against BPIs account with the Clearing
Office and credited back to the demand deposit of
the Treasury.
-Eventually, all warrants were returned by the Treasury
to the Central Bank for the same reason and with
the same demand.
-Central Bank then referred the matter to BPI for
appropriate action but the latter opposed the return
of the warrants or to have their value charged
against its account and requested, instead, to the
CB to return said warrants to the Treasurer.
[Equitable Case]
-4 warrants were deposited with Equitable by its
depositors Robert Wong, Lu Chiu Kau and Chung
Ching .
-Equitable cleared said warrants through the Clearing
Office and then collected the corresponding
amounts from the Treasurer, and thereafter,
credited those to the accounts of the depositors.
-The Treasurer notified Equitable that said warrants
were defective and demanded reimbursement of
said amounts, which the latter refused.
NEGO - Quevedo 11
Camille Umali
[Consolidation]
-By agreement of the parties, said cases were jointly
heard. (Kasi,BPI filed a complaint against the
Corporacion; Equitable filed a similar complaint for
whatever reimbursements it and BPI may be
sentenced to give the Govt.)
ISSUE
WON said banks are liable
HELD: No. The Treasury was the negligent one here
since there was a 24 hour clearing rule, wherein
items that should be returned for whatever reason
should be done so within 24 hours. This it failed to
do in these two cases.
(Note: there is no mention of the NIL here because the
28 warrants were not negotiable; Campos posed
the question that had the said warrants been
negotiable, would the Courts ruling be different?)
-Negligence in clearing: The Auditor of the Treasury,
whose signature was forged, exceeded his
authority to approve since each of the warrants
involved were for over 5k pesos. The irregularity of
the warrants was apparent on the face thereof from
the Treasurys viewpoint yet the banks were not
informed of any of the irregularity in them until after
said warrants were cleared and honored. Only then
did the Treasury give notice of the forgeries.
-As was stated, all 28 warrants were cleared and paid
by the Treasury, this, then, induced the banks to
credit the amounts to the respective depositors. TF,
the loss of amounts was imputable to the acts and
omissions of the Treasury so the banks should not
and cannot be penalized.
-Treasury should bear the loss, citing PNB v Natl City
Bank of NY, Where a loss, which must be borne by
one of two parties alike, innocent of forgery, can be
traced to the neglect or fault of either, it is
reasonable that it would be borne by him, even if
innocent of any intentional fraud, through whose
means it has succeeded.
-Generally, where a drawee bank otherwise would have
a right of recovery against a collecting or indorsing
bank for its payment of a forged check, its action
will be barred if it is guilty of an unreasonable delay
in discovering the forgery and in giving notice
thereof. (C.J.S. 769-770)
-First State Bank & Trust v. First Natl Bank: (restated
lang to ha!) Where a defendant bank, on
presentation to it of a forged check drawn on
another bank, paid part of amount to presenter,
drawee having had the check cleared through the
clearing house, with no notice of forgery given, said
bank cannot be held liable for amount so paid.
Disposition Decision appealed from is Affirmed.

FIRST NATL BANK OF PORTLAND V NOBLE (1946)
179 Ore. 26, 168 P. (2d) 354 (1946)
~jaja~
FACTS
SUBJECT: check drawn as a refund of the payment
made by John and Lilian Noble for the property
purchased and subsequently reconveyed to T.D.
Lee through the drawer
DRAWER: Kelleck, a broker
DRAWEE: First National Bank of Portland Oregon
PAYEE: Lilian S. Noble
SUBSEQUENT INDORSEMENTS: Mrs. Noble
indorsed the check in blank and deposited it in
the United States National Bank of Portland. The
deposit, on the same day, was entered as credits
in the Nobles savings account and checking
account.
-The US National Bank, on Sept21, placed its clearing
house indorsement, as of Sept22, on the check.
The check reached the drawee, the First National
Bank of Portland on Sept22. The account of the
drawer, Kelleck, then had but $200 to his credit.
On discovery of this fact a teller in the First
National Bank placed a small symbol on the
check which indicated that the check was to be
rejected for want of sufficient funds. The check
was then returned through the clearing house to
the forwarding bank, the US National, at 11 am,
Sept23, with the advice that it was being
dishonored for insufficient funds in the drawers
account. The credit to the US National Bank was
canceled by the First National. The US National,
by letter dated Sept23, informed Mrs. Noble of
the dishonor of the Kelleck check and that it had
been charged back to the Nobles account.
-Sept24, shortly before 3pm, US National Bank by
messenger presented the check over the counter
of the First National. The teller in the First
National, to whom the check was presented the
second time, mistook the rejection symbol which
on Sept22, had been placed on the check by
another teller of the First National, for a symbol
authorizing payment. Acting on this mistaken
assumption he prepared a cashiers check dated
Sept24, payable to order of the United States
National in the amount of the Kelleck check, had
the same duly signed by an assistant cashier of
the drawee and delivered the same to the
messenger from the United States National. The
United States National credited the First
Nationals cashiers check to the account of the
Nobles. The First Nationals cashiers check was
marked paid through the clearing house at 8:45
a.m., Sept25, to the United States National
though the courts finds that the cashiers check
was received by the First National on Sept24 and
marked paid on that date though the clearing
house transaction took place on the next
morning.
-Sept25, the First National Bank discovered its
mistake and before 12 oclock the First National
NEGO - Quevedo 12
Camille Umali
retendered the Kelleck check as a dishonored
item but the United States National refused to
receive it and to return the proceeds of the
cashiers check. The First National Bank brought
an action of assumpsit for money had and
received against Lilian Noble and John Noble
and the United States National Bank to recover
the amount of the cashiers check, i.e., $10,
573.50. The US National Bank filed its bill of
interpleader and tendered the money into court.
The plaintiff recovered judgment in the trial court
against the Nobles. The Nobles appealed.
-The court concluded that the asserted right of plaintiff
to restitution must be considered exactly as if the
Kelleck check and had been paid over the
counter in cash.
ISSUE
WON the trial court erred in discharging the US
National from liability
HELD: NO
-Rule 33 of the Restatement on Restitution must
control the decision of this case. It is as follows:
-The payee is entitled to retain the money which he
has received as a bona fide purchaser. The
typical cases are those where an employee of a
bank pays the holder of a check in the mistaken
belief that the drawer has sufficient funds on
deposit to meet it or in forgetfulness of the fact
that the drawer has directed that payment should
not be made.
-The forgery cases are said to rest, in part at least,
upon the maxim that where the equities are equal
the legal title must prevail. That maxim appears
applicable where a drawee bank pays a check so
skillfully forged as to defy detection. The holder
and the drawee are equally without fault, and the
holder has the money.
-The position of the defendants in the case at bar is in
this respect stronger than that of the one who has
received payment of a forged check. Here the
equities are not equal. The representative of the
plaintiff was clearly negligent. He acted in
reliance on a symbol which he had never before
seen the meaning of which he had no reason to
know. A moments inquiry would have informed
him fully concerning the meaning of the symbol
and the state of Kellecks account. But no inquiry
was made.
-The defendants Noble are not chargeable with any
neglect or inequitable conduct. Neither they nor
their collecting agent knew or were entitled to
know the state of the Kelleck account, and the
fact that the Kellect check was NSF on Sept22
did not render it unconscionable to present it
again on Sept24, Freeport Bank of Freeport.

Disposition The decree in favor of the First National
Bank is reversed. It is ordered that the
defendants Noble recover the sum $10,573.50
paid into the registry of the court xxx The decree
is affirmed as to the United States National Bank.
LIBERTY TRUST CO V HAGGERTY (1921)
[place citation here]
~ina~
FACTS
-Haggerty, a manloloko, had a checking account with
Liberty Trust Co. He induced a bookkeeper of the
bank to manipulate the bank's books to make it
appear that he had credit in the bank so that the
checks he drew on the bank would be honored.
They were successful for about 5 months, when
a bank official accidentally discovered the
falsification. Haggerty and bookkeeper
succeeded in obtaining overdrafts of about $53k
of the bank's funds.
-Haggerty was arrested. He was also declared
bankrupt and a trusty was appointed. His total
realized assets was $9500 and the claims filed
with the trustee totaled more than $150k.
-Mayhew was one of the claimants. He loaned
Haggerty some money with 20-40% interest.
Haggerty paid him with checks drawn on Liberty.
The bank paid a total of $19k to Mayhew during
the time the books were being magicked.
Mayhew was not aware of the fact that
Haggerty's account was being falsified.
-Liberty wants to recover the money it paid to
Mayhew.
ISSUES
WON Liberty can recover what it paid Mayhew
HELD: NO.
Mayhew was a bona fide holder for value. As such, he
did not have a right to exact payment from Liberty
NEGO - Quevedo 13
Camille Umali
The defendants Noble may have their costs and
disbursements from the plaintiff First National
Bank.
because there was no contract between them.
Liberty, on the other hand, had the right to
determine WON to pay him. When the bank
decided to pay, it was bound to know the state of
its account with Haggerty. Having exercised its
option to pay or not to pay by honoring the
checks, Liberty can't recover the money back
from the payee. This is under the general rule
that payment of a check by a bank upon which it
is drawn, under the mistaken belief that the
maker of the check has sufficient funds to his
credit to pay the check, is a finality, and the bank
can't recover from the payee of the check the
amount so paid.
-The reasons for this rule are:
1. there's no privity between the payee and the bank;
2. the bank always has the means of knowing the
state of the depositor's account by an
examination of its books, and therefore the
payment is not a mistake within the meaning of
the general rule which permits the recovery of
money paid under a mistake of fact; and
3. to permit the bank to repudiate the payment would
destroy the certainty that must pertain to
commercial transactions and give way to
uncertainty, delay and annoyance.
-It's a rule that a person receiving stolen money
innocently in due course of business, in payment
of a pre-existing debt, is a holder for value as
against the former owner.

GREAT EASTERN LIFE INS. V HSBC (1922)
43 Phil 678 (1922); Johns
~chrislao~
FACTS
-Great Eastern, an insurance company, drew a check
for 2k on HSBC payable to the order of Melicor.
-Maasim fraudulently obtained possession of said
check and forged Melicor's signature, as an
endorser. He then endorsed and presented it to
PNB where the amount was placed to his credit.
-After paying Maasim, PNB endorsed the check to
HSBC. HSBC paid PNB and then charged the
check to the account of Great Eastern.
-HSBC, as expected in the ordinary course of
business, sent Great Eastern a bank statement
which showed that the check was charged to its
account. Great Eastern did not object.
-4 months later, Great Eastern found out that Melicor
never got paid. Great Eastern then made a
demand on HSBC that Great Eastern should be
given credit for the forged check but HSBC
refused.
-Great Eastern sued HSBC to recover the 2k (so it
could pay Melicor). HSBC, on the other hand,
prays that should judgment be rendered against
it, it should have like judgment against PNB.
ISSUES
WON Great Eastern can recover
HELD
NEGO - Quevedo 14
Camille Umali
YES. This is not a case where the plaintiff's own
signature was forged to one of its checks. In such
a case, the plaintiff would have known the forgery
and would therefore have the duty to promptly
notify the bank. Failure to do so would release
the bank.
-Here, the forgery was that of Melicor, the payee.
Therefore, when Great Eastern, the drawer,
received its bank statement, it had the right to
assume that Melicor had personally endorsed the
check because otherwise, HSBC would not have
paid it.
-HSBC had no legal right to pay it out to anyone
except Great Eastern or its order. Great Eastern
ordered HSBC to pay the 2k to Melicor but the
money was paid to Maasim. HSBC has no
defense to this action.
-PNB cashed the check upon a forged signature. PNB
had no license or authority to pay the money to
Maasim. It was its legal duty to know that
Melicor's endorsement was genuine before
cashing the check. Its remedy is against Maasim.
-Great Eastern can recover from HSBC. HSBC can
recover from PNB. As for PNB, it should go after
Maasim.

JAI-ALAI CORP. OF THE PHIL. V BPI (1975)
66 SCRA 29; CASTRO; August 6, 1975
~apple~
FACTS
-10 checks with a total face value of P8,030.58 were
deposited by Jai-Alai Corporation in its current
account with BPI
-All the checks (all payable to Inter-Island Gas or
order) were acquired by the Jai-Alai Corporation
from one Antonio J. Ramirez, a sales agent of the
Inter-Island Gas and a regular bettor at jai-alai
games
-Upon deposit to BPI, the checks were temporarily
credited to Jai-Alai Corporation's account with the
condition that any credit allowed...is provisional
only, until such time as the proceeds thereof, in
current funds or solvent credits, shall have been
actually received by the Bank, and the latter
reserves to itself the right to charge back the item
to the account of its depositor, at any time before
that event, regardless of whether or not the item
itself can be returned...
-After Ramirez had resigned from the Inter-Island Gas
and after the checks had been submitted to inter-
bank clearing, Inter-Island Gas discovered that all
the indorsements made on the checks
purportedly by its cashiers, as well as the rubber
stamp impression thereon reading "Inter-Island
Gas Service, Inc.," were forgeries.
-Inter-Island Gas advised Jai-Alai Corp, BPI, the
drawers and the drawee-banks of the said
checks about the forgeries
-Drawers of the checks demanded reimbursement to
their respective accounts from the drawee-banks
-Drawee-banks demanded from BPI, as collecting
bank, the return of the amounts they had paid on
account thereof
-BPI, for its part, debited Jai-Alai Corp's current
account
-On October 8, 1959, Jai-Alai Corp drew against its
current account with BPI a check for P135,000
payable to the order of the Mariano Olondriz y
Cia in payment of certain shares of stock.
-The check was dishonored by BPI as its records
showed that the current account of the petitioner,
after netting out the value of the checks
P8,030.58 with the forged indorsements, had a
balance of only P128,257.65.
-Jai-Alai Corp filed a complaint with CFI, which was
dismissed; CA affirmed dismissal
ISSUE
WON BPI had the right to debit the petitioner's current
account in the amount corresponding to the total
value of the checks with the forged indorsements
HELD: YES. The respondent acted within legal
bounds when it debited the petitioner's account.
-When the petitioner deposited the checks with the
respondent, the nature of the relationship created
at that stage was one of agency--the bank was to
NEGO - Quevedo 15
Camille Umali
collect from the drawees of the checks the
corresponding proceeds. It is true that the
respondent had already collected the proceeds of
the checks when it debited the petitioner's
account, so that following the rule in Gullas vs.
Philippine National Bank, it might be argued that
the relationship between the parties had become
that of creditor and debtor as to preclude the
respondent from using the petitioner's funds to
make payments not authorized by the latter.
-Section 23 of the Negotiable Instruments Law
provides: "When a signature is forged or made
without the authority of the person whose
signature it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof
against any party thereto, can be acquired
through or under such signature, unless the party
against whom it is sought to enforce such right is
precluded from setting up the forgery or want of
authority."
-BPI, as a collecting bank which indorsed the checks
to the drawee-banks for clearing, should be liable
to the latter for reimbursement, for, as found by
the court a quo and by the appellate court, the
indorsements on the checks had been forged
-In legal contemplation, therefore, the payments made
by the drawee-banks to the BPI, on account of
the said checks, were ineffective; and, such
being the case, the relationship of creditor and
debtor between the petitioner and the respondent
had not been validly effected, the checks not
having been properly and legitimately converted
into cash.
-Having received the checks merely for collection and
deposit, BPI cannot he expected to know or
ascertain the genuineness of all prior
indorsements on the said checks. Indeed, Jai-
Alai, having indorsed the checks to BPI in
accordance with the rules and practices of
commercial banks, is deemed to have given the
warranty prescribed in Section 66 of the
Negotiable Instruments Law that every single one
of those checks "is genuine and in all respects
what it purports to be."
-Also, Jai-Alai was grossly recreant in accepting the
checks in question from Ramirez. It could not
have escaped it's attention that the payee of all
the checks was a corporation the Inter-Island
Gas Service, Inc. Yet, the petitioner cashed these
checks to a mere individual who was admittedly a
habitue at its jai-alai games without making any
inquiry as to his authority to exchange checks
belonging to the payee-corporation.
-It must be noted further that three of the checks in
question are crossed checks, which may only be
deposited, but not encashed; yet, the petitioner
negligently accepted them for cash.

-Under Section 67 of the Negotiable Instruments Law,
"Where a person places his indorsement on an
instrument negotiable by delivery he incurs all the -Also, under article 2154 of the New Civil Code "If
liability of an indorser," and under Section 66 of
the same statute a general indorser warrants that
the instrument "is genuine and in all respects
what it purports to be." Considering that the
petitioner indorsed the said checks when it
deposited them with the respondent, the
petitioner as an indorser guaranteed the
genuineness of all prior indorsements thereon.
The respondent which relied upon the petitioner's
REPUBLIC BANK VS. CA, 1991
Facts:
San Miguel Corporation issued a dividend check for
P240 in favor of J. Roberto Delgado, a
stockholder. Delgado altered the amount of the
check to P9,240. The check was indorsed and
deposited by Delgado with Republic Bank.
Republic Bank endorsed the check to First
National City Bank (FNCB), the drawee bank, by
stamping on the back of the check
all prior and / or lack of indorsements
guaranteed.
Relying on the endorsement, FNCB paid the amount
to Republic Bank. Later on, San Miguel informed
FNCB of the material alteration of the amount.
FNCB recredited the amount to San Miguels
account, and demanded refund from Republic
Bank. Republic Bank refused. Hence, the present
action.
NEGO - Quevedo 16
Camille Umali
warranty should not be held liable for the
resulting loss.
something is received when there is no right to
demand it and it was unduly delivered through
mistake, the obligation to return it arises." There
was, therefore, in contemplation of law, no valid
payment of money made by the drawee-banks to
the respondent on account of the questioned
checks.
Issue: Who shall bear the loss resulting from the
altered check.
Held:
When an indorsement is forged, the collecting bank or
last indorser, as a generalrule, bears the loss.
But the unqualified indorsement of the collecting
bank on the checkshould be read together with
the 24-hour regulation on clearing house
operation. Thus,when the drawee bank fails to
return a forged or altered check to the collecting
bank withinthe 24-hour clearing period (as
provided by Section 4c of Central Bank Circular
9, asamended), the collecting bank is absolved
from liability. The drawee bank, FNCB,
shouldbear the loss for the payment of the
altered check for its failure to detect and warn
RepublicBank of the fraudulent character of the
check within the 24-hour clearing house rule.

ASSOCIATED BANK VS. COURT OF APPEALS [GR 107382, 31 JANUARY 1996];
ALSO PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS [GR 107612]
Second Division, Romero (J): 3 concur
Facts:
The Province of Tarlac maintains a current account
with the Philippine National Bank (PNB) Tarlac
Branch where the provincial funds are deposited.
Checks issued by the Province are signed by the
Provincial Treasurer and countersigned by the
Provincial Auditor or the Secretary of the
Sangguniang Bayan.
A portion of the funds of the province is allocated to
the Concepcion Emergency Hospital. The
allotment checks for said government hospital
are drawn to the order of "Concepcion
Emergency Hospital, Concepcion, Tarlac" or "The
Chief, Concepcion Emergency Hospital,
Concepcion, Tarlac."
The checks are released by the Office of the
Provincial Treasurer and received for the hospital
by its administrative officer and cashier. In
January 1981, the books of account of the
Provincial Treasurer were post-audited by the
Provincial Auditor.
It was then discovered that the hospital did not
receive several allotment checks drawn by the
Province.
On 19 February 1981, the Provincial Treasurer
requested the manager of the PNB to return all of
its cleared checks which were issued from 1977
to 1980 in order to verify the regularity of their
encashment.
After the checks were examined, the Provincial
Treasurer learned that 30 checks amounting to
P203,300.00 were encashed by one Fausto
Pangilinan, with the Associated Bank acting as
collecting bank.
It turned out that Fausto Pangilinan, who was the
administrative officer and cashier of payee
hospital until his retirement on 28 February 1978,
collected the checks from the office of the
Provincial Treasurer.
He claimed to be assisting or helping the hospital
follow up the release of the checks and had
official receipts. Pangilinan sought to encash the
first check with Associated Bank. However, the
manager of Associated Bank refused and
suggested that Pangilinan deposit the check in
his personal savings account with the same
bank.
Pangilinan was able to withdraw the money when the
check was cleared and paid by the drawee bank,
PNB. After forging the signature of Dr. Adena
NEGO - Quevedo 17
Camille Umali
Canlas who was chief of the payee hospital,
Pangilinan followed the same procedure for the
second check, in the amount of P5,000.00 and
dated 20 April 1978, as well as for 28 other
checks of various amounts and on various dates.
The last check negotiated by Pangilinan was for
P8,000.00 and dated 10 February 1981.
All the checks bore the stamp of Associated Bank
which reads "All prior endorsements guaranteed
Associated Bank." Jesus David, the manager of
Associated Bank, alleged that Pangilinan made it
appear that the checks were paid to him for
certain projects with the hospital. He did not find
as irregular the fact that the checks were not
payable to Pangilinan but to the Concepcion
Emergency Hospital. While he admitted that his
wife and Pangilinan's wife are first cousins, the
manager denied having given Pangilinan
preferential treatment on this account.
On 26 February 1981, the Provincial Treasurer wrote
the manager of the PNB seeking the restoration
of the various amounts debited from the current
account of the Province. In turn, the PNB
manager demanded reimbursement from the
Associated Bank on 15 May 1981.
As both banks resisted payment, the Province
brought suit against PNB which, in turn,
impleaded Associated Bank as third party
defendant. The latter then filed a fourth-party
complaint against Adena Canlas and Fausto
Pangilinan.
After trial on the merits, the lower court rendered its
decision on 21 March 1988, on the basic
complaint, in favor of the Province and against
PNB, ordering the latter to pay to the former, the
sum of P203,300.00 with legal interest thereon
from 20 March 1981 until fully paid; on the third-
party complaint, in favor of PNB and against
Associated Bank ordering the latter to reimburse
to the former the amount of P203,300.00 with
legal interests thereon from 20 March 1981 until
fully paid; on the fourth-party complaint, the same
was ordered dismissed for lack of cause of action
as against Adena Canlas and lack of jurisdiction
over the person of Fausto Pangilinan as against
the latter. The court also dismissed the
counterclaims on the complaint, thirdparty
complaint and fourth-party complaint, for lack of
merit. PNB and Associated Bank appealed to the
Court of Appeals.
The appellate court affirmed the trial court's decision
in toto on 30 September 1992. Hence the

consolidated petitions which seek a reversal of
the appellate court's decision.
Issue: Whether PNB was at fault and should solely
bear the loss because it cleared and paid the
forged checks.
Held:
The present case concerns checks payable to the
order of Concepcion Emergency Hospital or its
Chief.
They were properly issued and bear the genuine
signatures of the drawer, the Province of Tarlac.
The infirmity in the questioned checks lies in the
payee's (Concepcion Emergency Hospital)
indorsements which are forgeries. At the time of
their indorsement, the checks were order
instruments. Checks having forged indorsements
should be differentiated from forged checks or
checks bearing the forged signature of the
drawer.
Where the instrument is payable to order at the time
of the forgery, such as the checks in the case,
the signature of its rightful holder (here, the
payee hospital) is essential to transfer title to the
same instrument.
When the holder's indorsement is forged, all parties
prior to the forgery may raise the real defense of
forgery against all parties subsequent thereto. An
indorser of an order instrument 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." He cannot interpose the
defense that signatures prior to him are forged.
A collecting bank where a check is deposited
andwhich indorses the check upon presentment
with the drawee bank, is such an indorser. So
even if the indorsement on the check deposited
by the banks' client 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. The bank on which a check is
drawn, known as the drawee bank, is under strict
liability to pay the check to the order of the
payee.
The drawee bank is not similarly situated as the
collecting bank because the former makes no
warranty as to the genuineness of any
indorsement. The drawee bank's duty is but to
verify the genuineness of the drawer's signature
and not of the indorsement because the drawer is
its client. Moreover, the collecting bank is made
liable because it is privy to the depositor who
negotiated the check.
NEGO - Quevedo 18
Camille Umali
The bank knows him, his address and history
because he is a client. It has taken a risk on his
deposit. The bank is also in a better position to
detect forgery, fraud or irregularity in the
indorsement. Hence, the drawee bank can
recover the amount paid on the check bearing a
forged indorsement from the collecting bank.
However, a drawee bank has the duty to promptly
inform the presentor of the forgery upon
discovery. If the drawee bank delays in informing
the presentor of the forgery, thereby depriving
said presentor of the right to recover from the
forger, the former is deemed negligent and can
no longer recover from the presentor.
Herein, PNB, the drawee bank, cannot debitthe
current account of the Province of Tarlac
because it paid checks which bore forged
indorsements.However, if the Province of Tarlac
as drawer was negligent to the point of
substantially contributing to the loss, then the
drawee bank PNB can charge its account. If both
drawee bank-PNB and drawer-Province of Tarlac
were negligent, the loss should be properly
apportioned between them.
The loss incurred by drawee bank-PNB can be
passed on to the collecting bank-Associated
Bank which presented and indorsed the checks
to it. Associated Bank can, in turn, hold the
forger, Fausto Pangilinan, liable. If PNB
negligently delayed in informing Associated Bank
of the forgery, thus depriving the latter of the
opportunity to recover from the forger, it forfeits
its right to reimbursement and will be made to
bear the loss. The Court finds that the Province
of Tarlac was equally negligent and should,
therefore, share the burden of loss from the
checksbearing a forged indorsement.
The Province of Tarlac permitted Fausto Pangilinan to
collect the checks when the latter, having already
retired from government service, was no longer
connected with the hospital. With the exception of
the first check (dated 17 January 1978), all the
checks were issued and released
afterPangilinan's retirement on 28 February 1978.
After nearly three years, the Treasurer's office was
still releasing the checks to the retired cashier. In
addition, some of the aid allotment checks were
released to Pangilinan andthe others to Elizabeth
Juco, the new cashier. The fact that there were
now two persons collecting the checks for the
hospital is an unmistakable sign of an irregularity
which should have alerted employees in the
Treasurer's office of the fraud being committed.
There is also evidence indicating that the
provincialemployees were aware of Pangilinan's
retirement and consequent dissociation from the

hospital. Hence, due to the negligence of the
Province of Tarlac in releasing the checks to an
unauthorized person (FaustoPangilinan), in
allowing the retired hospital cashier to receive the
checks for the payee hospital for a periodclose to
three years and in not properly ascertaining why
the retired hospital cashier was collecting checks
forthe payee hospital in addition to the hospital's
real cashier, the Province contributed to the loss
amounting to P203,300.00 and shall be liable to
the PNB for 50% thereof.
NEGO - Quevedo 19
Camille Umali
In effect, the Province of Tarlac can only recover
50% of P203,300.00 from PNB. The collecting
bank, Associated Bank, shall be liable to PNB for
50% of P203,300.00. It is liable on its warranties
as indorser of the checks which were deposited
by Fausto Pangilinan, having guaranteed the
genuineness of all prior indorsements, including
that of the chief of the payee hospital, Dr. Adena
Canlas. Associated Bank was also remiss in its
duty to ascertain the genuineness of the payee's
indorsement.

CANAL BANK V BANK OF ALBANY
Supreme Court of New York; 1 Hill 287 (1841)
~rach~
FACTS
-This is a case to recover money paid on a draft. The
ground on which the plaintiffs sought to recover
back the money was that the endorsement
purporting to be that of Bentley was a forgery,
which fact was proved by Bentley and others on
the trial.
-The draft was drawn on the plaintiffs (Canal Bank)
by the Montgomery County Bank, payable to
the order of E. Bentley. It purported to have been
endorsed successively by Bentley, then by one
Budd, afterward by the Bank of New-York, and
lastly by the defendants (Bank of Albany), to
whom the plaintiffs paid it.
-Two months after payment, plaintiffs asked the
defendants to have the money refunded, notifying
them at the same time of the forgery.
-Upon plaintiffs objections, the circuit judge overruled
the defendants offer to prove the ff:
(1) That the defendants received the draft from the
Bank of New York to collect, as agents for the
latter, and that as such they received the money
and paid it over to their principals, before notice
of the forgery;
(2) That a uniform custom of the banks of this state is
to receive and collect drafts in the manner this
was done, without disclosing their agency.
ISSUE
WON the defendants were bound to return the money
received
HELD: YES
NEGO - Quevedo 20
Camille Umali
Ratio Though the defendants were innocent of any
intended wrong, they had obtained money of the
plaintiffs on an instrument to which they had no
title, and were therefore bound to refund; though
notice of the forgery was not given till more than
two months after they had received the money,
they already received it and transmitted it to their
principal.
-Where a bank collects a draft without disclosing to
the drawee that it is merely collecting as agent,
and it is afterwards discovered that the
indorsement was a forgery, it is liable as principal
in an action, by the drawee.
-Where a draft had been fraudulently indorsed with
the name of an agent, who is also payee, and put
in circulation, bona fide, by the principal of the
pretended agent, without disclosing an agency,
the indorsee of the principal, discovering the
forgery two months after might recover the
money advanced to the principal.
-If one accepts a draft in the hands of a bona fide
holder, he will not be allowed afterward to dispute
the genuineness of the drawer's signature,
though he may that of the endorsers; and
payment operates, in this respect, the same as
an acceptance.
-To a note or bill payable to order, none but the payee
can assert any title without the indorsement of
such payee; not even a bona fide holder.
Disposition New trial denied.

REPUBLIC BANK V EBRADA
L-40796; 65 SCRA 680; July 31, 1975
~cha~
FACTS
SUBJECT: A forged check
DRAWER: Bureau of Treasury (treasury)
DRAWEE: Republic Bank (RB)
PAYEE: Martin Lorenzo, who was already dead 11
years before the check was executed
INDORSEE: Ramon Lorenzo, Delia Dominguez, then
lastly Mauricia Ebrada
-Treasury issued check in favor of Martin Lorenzo. The
check was subsequently indorsed to Ebrada for
encashment, and so after, she delivered the
proceeds to Dominguez, and Dominguez delivered
the latter to a certain Justinia Tinio. When
Treasury found out that the check was forged,
they demanded RB to refund the check proceeds.
RB demanded refund from Ebrada. TC ruled for
RB.
ISSUE: WON Ebrada, the last indorser, was liable to
pay the check on its face although she did not
benefit from it
HELD: YES. Ebrada liable to RB, RB liable to Treasury
Ratio. Where a check is drawn payable to the order of
one person and is presented to a bank by another
and purports upon its face to have been duly
indorsed by the payee of the check, it is the duty
of the bank to know that the check was duly
indorsed by the original payee, and where the
Bank pays the amount of the check to a third
person, who has forged the signature of the
payee, the loss falls upon the bank who cashed
the check, and its only remedy is against the
person to whom it paid the money.
Re: effect of forged instrument: Where the signature on
a negotiable instrument if forged, the negotiation
of the check is without force or effect (from Section
23 of the Negotiable Instruments Law (Act 2031)).
It is only the negotiation based on the forged or
unauthorized signature which is inoperative (Beam
vs. Farrel).
Re: drawees recovery when he paid based on a
forged instrument: the drawee of a check can
recover from the holder the money paid to him on
a forged instrument. It is not supposed to be its
duty to ascertain whether the signatures of the
payee or indorsers are genuine or not. This is
because the indorser is supposed to warrant to the
drawee that the signatures of the payee and
previous indorsers are genuine, warranty not
extending only to holders in due course. One who
purchases a check or draft is bound to satisfy
himself that the paper is genuine and that by
indorsing it or presenting it for payment or putting
it into circulation before presentation he impliedly
asserts that he has performed his duty and the
drawee who has paid the forged check, without
actual negligence on his part, may recover the
money paid from such negligent purchasers. In
NEGO - Quevedo 21
Camille Umali
such cases the recovery is permitted because
although the drawee was in a way negligent in
failing to detect the forgery, yet if the encasher of
the check had performed his duty, the forgery
would in all probability, have been detected and
the fraud defeated.
Ratio for allowing recovery: Every one with even the
least experience in business knows that no
business man would accept a check in exchange
for money or goods unless he is satisfied that the
check is genuine. He accepts it only because he
has proof that it is genuine, or because he has
sufficient confidence in the honesty and financial
responsibility of the person who vouches for it. If
he is deceived he has suffered a loss of his cash
or goods through his own mistake. His own
credulity or recklessness, or misplaced confidence
was the sole cause of the loss. Why should he be
permitted to shift the loss due to his own fault in
assuming the risk, upon the drawee, simply
because of the accidental circumstance that the
drawee afterwards failed to detect the forgery
when the check was presented?
Reasoning.Since Ebrada was the last indorser of the
check, she was supposed to have warranted that
she has good title to said check. She was duty-
bound to ascertain whether the check in question
was genuine before presenting it to plaintiff Bank
for payment. Her failure to do so makes her liable
for the loss and the plaintiff Bank may recover
from her the money she received for the check. As
reasoned out above, had she performed the duty
of ascertaining the genuineness of the check, in all
probability the forgery would have been detected
and the fraud defeated.
-As regards RB, the plaintiff Bank should suffer the
loss when it paid the amount of the check in question
to defendant-appellant, but it has the remedy to
recover from the latter the amount it paid to her.
-as regards the argument that Ebrada did not benefit
from the check, although the defendant-appellant
to whom the plaintiff Bank paid the check was not
proven to be the author of the supposed forgery,
yet as last indorser of the check, she has
warranted that she has good title to it even if in
fact she did not have it because the payee of the
check was already dead 11 years before the
check was issued. The fact that immediately after
receiving the cash proceeds of the check in
question in the amount of P1,246.08 from the
plaintiff Bank, defendant-appellant immediately
turned over said amount to Adelaida Dominguez
(Third-Party defendant and the Fourth-Party
plaintiff) who in turn handed the amount to Justina
Tinio on the same date would not exempt her from
liability because by doing so, she acted as an
accommodation party in the check for which she is
also liable under Section 29 of the Negotiable
Instruments Law.

BANCO DE ORO V EQUITABLE BANK CORP
157 SCRA 188; Gancayco; January 20, 1988
~jojo~
FACTS
-Sometime in 1983, EBC thru its Visa Card
Department, drew 6 crossed Manager's checks
amounting to P45,982.23 and payable to certain
member establishments of Visa Card. Subsequently,
the Checks were deposited with the BDO to the credit
of its depositor, a certain Aida Trencio.
-Following normal procedures, and after stamping at
the back of the checks the usual endorsements: 'All
prior and/or lack of endorsement guaranteed', BDO
sent the checks for clearing through the PCHC.
Accordingly, EBC paid the checks; its clearing
account was debited for the value of the checks and
defendant's clearing account was credited for the
same amount.
-Thereafter, EBC discovered that the endorsements
appearing at the back of the checks and purporting to
be that of the payees were forged and/or
unauthorized or otherwise belong to persons other
than the payees.
-EBC presented the checks directly to BDO for the
purpose of claiming reimbursement from the latter.
However, BDO refused to accept such direct
presentation and to reimburse the EBC for the value
of the Checks.
ISSUE
WON BDO was negligent and thus responsible for
any undue payment
HELD: YES
-In presenting the Checks for clearing and for
payment, BDO made an express guarantee on the
validity of 'all prior endorsements'. Thus, stamped at
the bank of the checks are the defendant's clear
warranty: ALL PRIOR ENDORSEMENTS AND/OR
NEGO - Quevedo 22
Camille Umali
LACK OF ENDORSEMENTS GUARANTEED.
Without such warranty, EDC would not have paid on
the checks.
-No amount of legal jargon can reverse the clear
meaning of BDO's warranty. As the warranty has
proven to be false and inaccurate, the BDO is liable
for any damage arising out of the falsity of its
representation.
-The principle of estoppel effectively prevents BDO
from denying liability for any damages sustained by
EBC which, relying upon an action or declaration of
the BDO, paid on the checks. The same principle of
estoppel effectively prevents the BDO from denying
the existence of the checks.
-Whether the checks have been issued for valuable
considerations or not is of no serious moment to this
case. These checks have been made the subject of
contracts of endorsement wherein BDO made
expressed warranties to induce payment by the
drawer of the Checks; and the defendant cannot now
refuse liability for breach of warranty as a
consequence of such forged endorsements. BDO has
falsely warranted in favor of EBC the validity of all
endorsements and the genuineness of the checks in
all respects what they purport to be.
-The damage that will result if judgment is not
rendered for EBC is irreparable. The collecting bank
has privity with the depositor who is the principal
culprit in this case. BDO knows the depositor; her
address and her history, Depositor is BDO's client. It
has taken a risk on its depositor when it allowed her
to collect on the crossed-checks.
-Having accepted the crossed checks from persons
other than the payees, BDO is guilty of negligence;
the risk of wrongful payment has to be assumed by
BDO.
 NEGO - Quevedo 23
Camille Umali

BPI V CA, CHINA BANKING CORP

L-102383; 216 SCRA 51; November 26, 1992
~kiyo~

FACTS
SUBJECT: 2 checks for the pretermination of a
money market placement
DRAWER/DRAWEE: BPI
PAYEE: Eligia Fernando, impersonated by Susan
Lopez
INDORSMENT: China Banking Corp., collecting bank
of the BPI checks
-Lopez impersonated Fernando, preterminated the
latters money market placement evidenced by a
promissory note (P2,462,243.19) from and
through BPI, who issued her 2 checks. She later
opened an account at CBC and endorsed the
checks there; CBC stamped them with guaranty
of prior endorsements and/or lack of
endorsement; BPI cleared them. Lopez withdrew
nearly the whole amount. The real Fernando
came on the maturity date of the placement for
rollover and claimed forgery of endorsements.
ISSUE
WON in the event that the payees signature is
forged, BPI may claim reimbursement from CBC
HELD: NO
-Under Sec. 23, the general rule is that forged
signatures are wholly inoperative and payments
through such are ineffectual; the exception is
where the party relying on the forgery is
precluded from setting up the forgery or want of
authority. The court recognizes negligence of the
party invoking forgery as an exception; hence
general rule does not apply here. BPI claims the
clearing guaranty makes CBC wholly liable for
forged checks. Records show both BPI (not
calling Fernando to confirm pretermination; not
verifying Fernandos signatures; not asking for
the promissory note upon pickup of checks) and
CBC (opening account for Lopez with only
Fernandos tax account number as ID, not
questioning Lopez huge deposit and
withdrawals) were negligent in the
selection/supervision of their employees and thus
both liable.
Disposition BPI is liable 60%, CBC is liable 40%

GEMPESAW V CA, PBCOM
218 SCRA 682; Campos, Jr.; Feb 9, 1993
~athe~
FACTS
-Petitioner Natividad O. Gempesaw (petitioner) owns
and operates four grocery stores in Caloocan City.
Petitioner maintains a checking account with the
Caloocan City Branch of the respondent drawee Bank
(PBC). To facilitate payment of debts to her suppliers,
petitioner draws checks against her checking account
with PBC as drawee. Her customary practice of issuing
checks in payment of her suppliers was as follows: The
checks were prepared and filled up as to all material
particulars by her trusted bookkeeper, Alicia Galang,
an employee for more than eight (8) years. After the
bookkeeper prepared the checks, the completed
checks were submitted to the petitioner for her
signature, together with the corresponding invoice
receipts which indicate the correct obligations due and
payable to her suppliers. Petitioner signed each and
every check without bothering to verify the accuracy of
the checks against the corresponding invoices
because she reposed full and implicit trust and
confidence on her bookkeeper. The issuance and
delivery of the checks to the payees named therein
were left to the bookkeeper.
-In the course of her business operations covering a
period of two years, petitioner issued, following her
usual practice stated above, a total of eighty-two (82)
checks in favor of several suppliers.
-It appears that instead of issuing the checks to the
payees as named in the checks, Alicia Galang
delivered them to the Chief Accountant of the Buendia
branch of the respondent drawee Bank, a certain
Ernest L. Boon, who, without authority therefor,
accepted them all for deposit at the Buendia branch to
the credit and/or in the accounts of Alfredo Y. Romero
and Benito Lam. Ernest L. Boon was a very close
friend of Alfredo Y. Romero. It was established that
the signatures of the payees as first indorsers were
forged. The record fails to show the identity of the party
who made the forged signatures. The checks were
then indorsed for the second time with the names of
Alfredo Y. Romero and Benito Lam, and were
deposited in the latter's accounts as earlier noted. The
second indorsements were all genuine signatures of
the alleged holders.
-The total amount of P1,208,606.89, represented by
eighty-two (82) checks, were credited and paid out by
respondent drawee Bank to Alfredo Y. Romero and
Benito Lam, and debited against petitioner's checking
account , Caloocan branch.
-It was only after the lapse of more than two (2) years
that petitioner found out about the fraudulent
manipulations of her bookkeeper (payees did not
receive nor see the subject checks). Because of this,
the petitioner demanded from the drawee Bank to
credit her account with the money value of the 82
checks for having been wrongfully charged against her
account. The Bank refused.
PROCEDURE
NEGO - Quevedo 24
Camille Umali
RTC Caloocan Complaint for recovery of the money
value of the 82 checks: dismissed
CA Appeal: affirmed the decision of the RTC on two
grounds, namely (1) that the plaintiffs (petitioner
herein) gross negligence in issuing the checks was the
proximate cause of the loss and (2) assuming that the
bank was also negligent, the loss must nevertheless
be borne by the party whose negligence was the
proximate cause of the loss.
SC- Petition under Rule 45
ISSUES
(issues relevant to the topic)
1. WON the CA erred in ruling that the negligence of
the drawer is the proximate cause of the resulting
injury to the drawee bank
2. WON the drawer is precluded from setting up the
forgery or want of authority as a defense WON the
respondent drawee Bank should not have honored
the checks because they were crossed checks.
(other issues)
3. WON banking rules prohibit the drawee bank from
having checks with more than one indorsement.
4. WON the drawee Bank may be held liable for
damages under any law aside from NIL
HELD
1. NO. The petitioners negligence was the proximate
cause of her loss.
Reasoning
One thing is clear from the records -that the petitioner
failed to examine her records with reasonable diligence
whether before she signed the checks or after
receiving her bank statements. Had the petitioner
examined her records more carefully, particularly the
invoice receipts, cancelled checks, check book stubs,
and had she compared the sums written as amounts
payable in the eighty-two (82) checks with the pertinent
sales invoices, she would have easily discovered that
in some checks, the amounts did not tally with those
appearing in the sales invoices. Had she noticed these
discrepancies, she should not have signed those
checks, and should have conducted an inquiry as to
the reason for the irregular entries. Likewise, had
petitioner been more vigilant in going over her current
account by taking careful note of the daily reports
made by respondent drawee Bank on her issued
checks, or at least made random scrutiny of her
cancelled checks returned by respondent drawee Bank
at the close of each month, she could have easily
discovered the fraud being perpetrated by Alicia
Galang, and could have reported the matter to the
respondent drawee Bank. The respondent drawee
Bank then could have taken immediate steps to
prevent further commission of such fraud.
2. YES. As a general rule, forgery is a defense.
However, the plaintiff falls under the exception.

-The applicable law is Section 23 of the NIL which
provides:
"When a signature is forged or made without the
authority of the person whose signature it purports to
be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto, can
be acquired through or under such signature, unless
the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of
authority."
-General Rule: Forgery is a real or absolute defense
by the party whose signature is forged. A party whose
signature to an instrument was forged was never a
party and never gave his consent to the contract which
gave rise to the instrument. Since his signature does
not appear in the instrument, he cannot be held liable
thereon by anyone, not even by a holder in due
course. -This section covers both the forged signature
of the maker of a promissory note/drawer of a check
and forged indorsement, i.e., the forged signature of
the payee or indorsee of a note or check.
-Example: If a person's signature is forged as a maker
of a promissory note, he cannot be made to pay
because he never made the promise to pay. Or where
a person's signature as a drawer of a check is forged,
the drawee bank cannot charge the amount thereof
against the drawer's account because he never gave
the bank the order to pay.
-Exception: Where the drawer is guilty of such
negligence which causes the bank to honor such a
check or checks.
-Example: If a check is stolen from the payee, it is
quite obvious that the drawer cannot possibly discover
the forged indorsement by mere examination of his
cancelled check. This accounts for the rule that
although a depositor owes a duty to his drawee bank
to examine his cancelled checks for forgery of his own
signature, he has no similar duty as to forged
indorsements. A different situation arises where the
indorsement was forged by an employee or agent of
the drawer, or done with the active participation of the
latter. Most of the cases involving forgery by an agent
or employee deal with the payee's indorsement. The
drawer and the payee oftentimes have business
relations of long standing. The continued occurrence of
business transactions of the same nature provides the
opportunity for the agent/employee to commit the fraud
after having developed familiarity with the signatures of
the parties.
Reasoning In the case at bar, the agent was the one
who perpetrated the series of forgeries. Had the
petitioner been more prudent under the circumstances,
she could have discovered the fraud earlier.
3. NO.
Ratio Issuing a crossed check imposes no legal
obligation on the drawee not to honor such a check. It
is more of a warning to the holder that the check
cannot be presented to the drawee bank for payment
in cash. Instead, the check can only be deposited with
the payee's bank which in turn must present it for
NEGO - Quevedo 25
Camille Umali
payment against the drawee bank in the course of
normal banking transactions between banks. The
crossed check cannot be presented for payment but it
can only be deposited and the drawee bank may only
pay to another bank in the payee's or indorser's
account.
4. NO.
Ratio The banking rule banning acceptance of checks
for deposit or cash payment with more than one
indorsement unless cleared by some bank officials
does not invalidate the instrument; neither does it
invalidate the negotiation or transfer of the said check.
In effect, this rule destroys the negotiability of
bills/checks by limiting their negotiation by indorsement
of only the payee. Under the NIL, the only kind of
indorsement which stops the further negotiation of an
instrument is a restrictive indorsement which prohibits
the further negotiation thereof (Sec. 36, NIL). In this
kind of restrictive indorsement, the prohibition to
transfer or negotiate must be written in express words
at the back of the instrument, so that any subsequent
party may be forewarned that it ceases to be
negotiable. However, the restrictive indorsee acquires
the right to receive payment and bring any action
thereon as any indorser, but he can no longer transfer
his rights as such indorsee where the form of the
indorsement does not authorize him to do so.
-Although the holder of a check cannot compel a
drawee bank to honor it because there is no privity
between them, as far as the drawer-depositor is
concerned, such bank may not legally refuse to honor
a negotiable bill of exchange or a check drawn against
it with more than one indorsement if there is nothing
irregular with the bill or check and the drawer has
sufficient funds. The drawee cannot be compelled to
accept or pay the check by the drawer or any holder
because as a drawee, he incurs no liability on the
check unless he accepts it. But the drawee will make
itself liable to a suit for damages at the instance of the
drawer for wrongful dishonor of the bill or check.
5. YES. Article 1170 of the New Civil Code provides -
-Those who in the performance of their obligations are
guilty of fraud, negligence or delay, and those who in
any manner contravene the tenor thereof, are liable for
damages."
Reasoning There is no question that there is a
contractual relation between petitioner as depositor
(obligee) and the respondent drawee bank as the
obligor. In the performance of its obligation, the drawee
bank is bound by its internal banking rules and
regulations which form part of any contract it enters
into with any of its depositors. When it violated its
internal rules that second endorsements are not to be
accepted without the approval of its branch managers
and it did accept the same upon the mere approval of
Boon, a chief accountant, it contravened the tenor of
its obligation at the very least, if it were not actually
guilty of fraud or negligence.
We hold that banking business is so impressed with
public interest where the trust and confidence of the

public in general is of paramount importance such that
the appropriate standard of diligence must be a high
degree of diligence, if not the utmost diligence. Its
liability as obligor is not merely vicarious but primary
wherein the defense of exercise of due diligence in the
selection and supervision of its employees is of no
moment.
NEGO - Quevedo 26
Camille Umali
Disposition: REMANDED to the trial court for the
reception of evidence to determine the exact amount of
loss suffered by the petitioner (which one half must be
paid by respondent drawee bank to herein petitioner-
50/50 ratio based on Article 1172).

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PICB; FORMERLY INSULAR BANK OF ASIA AND
AMERICA) VS. COURT OF APPEALS [GR 121413, 29 JANUARY 2001]; ALSO FORD PHILIPPINES VS. COURT
OF APPEALS [GR 121479], AND FORD PHILIPPINES V.S CITIBANK N.A. [GR 128604]
Second Division: Quisumbing (J): 4 concur
Facts:
[GRs 121413 and 121479]
On 19 October 1977, Ford Philippines drew and
issued its Citibank Check SN-04867 -- a crossed
check in that, on its face were two parallel lines and
written in between said lines was the phrase "Payee's
Account Only" -- in the amount of P4,746,114.41, in
favor of the Commissioner of Internal Revenue as
payment of Ford's percentage or manufacturer's sales
taxes for the third quarter of 1977. The aforesaid
check was deposited with the Insular Bank of Asia
and America (IBAA) and was subsequently cleared at
the Central Bank.
Upon presentment with Citibank N.A., the proceeds of
the check was paid to IBAA as collecting or
depository bank. The proceeds of the same Citibank
check of Ford was never paid to or received by the
payee thereof, the Commissioner of Internal
Revenue. The amount of P4,746,114.41 was debited
in Ford's account with Citibank and the check was
returned to Ford.
Upon verification, Ford discovered that its Citibank
Check SN-04867 in the amount of P4,746,114.41 was
not paid to the Commissioner of Internal Revenue. In
separate letters dated 26 October 1979, addressed to
Citibank and IBAA, Ford notified the latter that in case
it will be re-assessed by the BIR for the payment of
the taxes covered by the said checks, then Ford shall
hold Citibank and IBAA liable for reimbursement of
the face value of the same.
IBAA and Citibank denied liability and refused to pay.
In a letter dated 28 February 1980 by the Acting
Commissioner of Internal Revenue addressed to Ford
officially informing the latter, among others, that its
check in the amount of P4,746,114.41 was not paid to
the government or its authorized agentand instead
encashed by unauthorized persons, hence, Ford has
to pay the said amount within 15 days from receipt of
the letter.
Upon advice of Ford's lawyers, Ford, on 11 March
1982, paid to the BIR the amount of P4,746,114.41,
representing payment of its percentage tax for the
third quarter of 1977. Said second payment of Ford in
the amount of P4,746,114.41 was duly received by
the BIR. As a consequence of Citibank's refusal to
reimburse Ford of the payment it had made for the
second time to the BIR of its percentage taxes, Ford
filed on 20 January 1983 its original complaint before
the court. On 24 December 1985, IBAA was merged
with the Philippine Commercial International Bank
(PCIB) with the latter as the surviving entity.
NEGO - Quevedo 27
Camille Umali
It was learned during an investigation by the National
Bureau of Investigation (NBI) that Citibank Check SN-
04867 was recalled by Godofredo Rivera, the General
Ledger Accountant of Ford. He purportedly needed to
hold back the check because there was an error in
the computation of the tax due to BIR. With Rivera's
instruction, PCIB replaced the check with two of its
own Manager's Checks (MCs). Alleged members of a
syndicate later deposited the two MCs with the Pacific
Banking Corporation (PBC). Ford, with leave of court,
filed a third party complaint before the trial court
impleading PBC and Rivera, as third party
defendants. But the court dismissed the complaint
against PBC for lack of cause of action.
The court likewise dismissed the third-party complaint
against Rivera because he could not be served with
summons as the NBI declared him as a "fugitive from
justice". On 15 June 1989, the trial court rendered its
decision, ordering Citibank and IBAA/PCIB to
solidarily pay Ford the amount of P4,746,114.41
representing the face value of Ford's Citibank Check
SN-04867, with interest thereon at the legal rate
starting 20 January 1983, the date when the original
complaint was filed until the amount is fully paid, plus
costs; ordering IBAA/PCIB to reimburse Citibank for
whatever amount the latter has paid or may pay to
Ford; with costs against Citibank and IBAA.
Not satisfied with the said decision, Citibank and
PCIB, elevated their respective petitions for review on
certiorari to the Court of Appeals. On 27 March 1995,
the appellate court issued its judgment affirming the
trial court's decision with modifications; dismissing the
complaint in Civil Case 49287 insofar as Citibank was
concerned; ordering IBAA/PCIB to pay Ford the
amount of P4,746,114.41 representing the face value
of Ford's Citibank Check SN-04867, with interest
thereon at the legal rate starting 20 January 1983. the
date when the original complaint was filed until the
amount is fully paid; with costs against IBAA/PCIB.
PCIB moved to reconsider the decision of the Court of
Appeals, while Ford filed a "Motion for Partial
Reconsideration." Both motions were denied for lack
of merit. Separately, PCIBank and Ford filed before
the Supre,e Court, petitions for review by certiorari
under Rule 45.
[GR 128604]
Ford drew Citibank Check SN-10597 on 19 July 1978
in the amount of P5,851,706.37 representing the
percentage tax due for the second quarter of 1978
payable to the Commissioner of Internal Revenue.
A BIR Revenue Tax Receipt 28645385 was issued for
the said purpose. On 20 April 1979, Forddrew another

Citibank Check SN-16508 in the amount of
P6,311,591.73, representing the payment of
percentage tax for the first quarter of 1979 and
payable to the Commissioner of Internal Revenue.
Again a BIR Revenue Tax Receipt A-1697160 was
issued for the said purpose. Both checks were
"crossed checks" and contain two diagonal lines on
its upper left corner between which were written the
words "payable to thepayee's account only." The
checks never reached the payee, CIR. Thus, in a
letter dated 28 February 1980, theBIR, Region 4-B,
demanded for the said tax payments the
corresponding periods above-mentioned. As far asthe
BIR is concerned, the said two BIR Revenue Tax
Receipts were considered "fake and spurious".
This anomaly was confirmed by the NBI upon the
initiative of the BIR. The findings forced Ford to pay
the BIR anew, while an action was filed against
Citibank and PCIBank for the recovery of the amount
of Citibank Check Numbers SN-10597 and 16508.
On 9 December 1988, Regional Trial Court of Makati,
Branch 57, held drawee-bank Citibank liable for the
value of the two checks while absolving PCIB from
any liability. Both Ford and Citibank appealed to the
Court of Appeals which affirmed, in toto, the decision
of the trial court. Hence, the petition for review.
[1] GRs 121413 and 121479
Issue [a]: Whether the forgery committed by the
drawer-payors confidential employees precludes
Ford from recovering the amount of its checks.
Held [a]: NO.
Although the employees of Ford initiated the
transactions attributable to an organized syndicate,
their actions were not the proximate cause of
encashing the checks payable to the CIR. The degree
of Ford's negligence, if any, could not be
characterized as the proximate cause of the injury to
the parties.
The Board of Directors of Ford did not confirm the
request of Godofredo Rivera to recall Citibank Check
SN- 04867. Rivera's instruction to replace the said
check with PCIB's Manager's Check was not in the
ordinary course of business which could have
prompted PCIB to validate the same. As to the
preparation of Citibank Checks SN-10597 and 16508,
it was established that these checks were made
payable to the CIR. Both were crossed checks.
These checks were apparently turned around by
Ford's employees, who were acting on their own
personal capacity. Given these circumstances, the
mere fact that the forgery was committed by a drawer
payor's confidential employee or agent, who by virtue
of his position had unusual facilities for perpetrating
the fraud and imposing the forged paper upon the
bank, does not entitle the bank to shift the loss to the
NEGO - Quevedo 28
Camille Umali
drawer-payor, in the absence of some circumstance
raising estoppel against the drawer. This rule likewise
applies to the checks fraudulently negotiated or
diverted by the confidential employees who hold them
in their possession.
Issue [b]: Whether the collecting bank (PCIB) was
negligent in preparing two managers check to
replace Citibank Check SN-04867, on orders of
persons besides the CIR.
Held [b]: YES.
Citibank Check SN-04867 was deposited at PCIB
through its Ermita Branch. It was coursed through the
ordinary banking transaction, sent to Central Clearing
with the indorsement at the back "all prior
indorsements and/or lack of indorsements
guaranteed," and was presented to Citibank for
payment.
Thereafter PCIB, instead of remitting the proceeds to
the CIR, prepared two of its Manager's checks and
enabled the syndicate to encash the same. On
record, PCIB failed to verify the authority of Mr.
Rivera to negotiate the checks. The neglect of PCIB
employees to verify whether his letter requesting for
the replacement of the Citibank Check SN-04867 was
duly authorized, showed lack of care and prudence
required in the circumstances.
Furthermore, it was admitted that PCIB is authorized
to collect the payment of taxpayers inbehalf of the
BIR. As an agent of BIR, PCIB is duty bound to
consult its principal regarding the unwarranted
instructions given by the payor or its agent.
As agent of the BIR, IBAA/PCIB should receive
instructions only from its principal BIR and not from
any other person especially so when that person is
not known to IBAA/PCIB. It is very imprudent on the
part of IBAA/PCIB to just rely on the alleged
telephone call of one (Rivera) and in his signature to
the authenticity of such signature considering that the
Ford is not a client of IBAA/PCIB.
[2] GR 128604
Issue [a]: Whether PCIB is liable for fraud
(embezzlement) committed by PCIB employees while
the checks were in transit for clearing.
Held [a]: YES.
Even if PCIB had no official act in the ordinary course
of business that would attribute to it the case of the
embezzlement of Citibank Check Numbers SN-10597
and 16508, because PCIB did not actually receive
nor hold the two Ford checks at all; that the switching
operation (involving the checks whilein transit for
"clearing") were the clandestine or hidden actuations
performed by the members of the syndicate in their
own personal, covert and private capacity and done
without the knowledge of PCIB; as a general rule,
however, a banking corporation is liable for the

wrongful or tortuous acts and declarations of its
officers or agents within the course and scope of their
employment.
A bank will be held liable for the negligence of its
officers or agents when acting within the course and
scope of their employment. It may be liable for the
tortuous acts of its officers even as regards that
species of tort of which malice is an essential
element.
Herein, although a situation exist where the PCIB
appears also to be the victim of the scheme hatched
by a syndicate in which its own management
employees had participated; a bank holding out its
officers and agents as worthy of confidence will not
be permitted to profit by the frauds these officers or
agents were enabled to perpetrate in the apparent
course of their employment; nor will it be permitted to
shirk its responsibility for such frauds, even though no
benefit may accrue to the bank therefrom.
For the general rule is that a bank is liable for the
fraudulent acts or representations of an officer or
agent acting within the course and apparent scope of
his employment or authority. And if an officer or
employee of a bank, in his official capacity, receives
money to satisfy an evidence of indebtedness lodged
with his bank for collection, the bank is liable for his
misappropriation of such sum. Moreover, Section 5 of
Central Bank Circular 580, Series of 1977 provides
that any theft affecting items in transit for clearing,
shall be for the account of sending bank, which in this
case is PCIB.
Issue [b]: Whether Citibank can raise the defenses
that it has no knowledge of any infirmity in the
issuance of the checks in question amd that the
endorsement of the Payee or lack thereof was
guaranteed by IBAA/PCIB and thus, it has the
obligation to honor and pay the same; among others.
NEGO - Quevedo 29
Camille Umali
Held [b]: NO.
Citibank as drawee bank was likewise negligent in the
performance of its duties. Citibank failed to establish
that its payment of Ford's checks were made in due
course and legally in order.
As ruled by the Court of Appeals, Citibank must
likewise answer for the damages incurred by Ford on
Citibank ChecksNumbers SN 10597 and 16508,
because of the contractual relationship existing
between the two.
Citibank, as the drawee bank breached its contractual
obligation with Ford and such degree of culpability
contributed tothe damage caused to the latter.
Citibank should have scrutinized Citibank Check
Numbers SN 10597 and 16508 before paying the
amount of the proceeds thereof to the collecting bank
of the BIR.
The clearing stamps at the back of Citibank Check
SN 10597 and 16508 do not bear any initials. Citibank
failed to notice and verify the absence of the clearing
stamps. Had this been duly examined, the switching
of the worthless checks to Citibank Checks 10597
and 16508 would have been discovered in time.
For this reason, Citibank had indeed failed to perform
what was incumbent upon it, which is to ensure that
the amount of the checks should be paid only to its
designated payee. The fact that the drawee bank did
not discover the irregularity seasonably constitutes
negligence in carrying out the bank's duty to its
depositors.
The point is that as a business affected with public
interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.

TRADERS ROYAL BANK V. RPN
390 SCRA 608
FACTS:
RPN, IBC and BBC were all assessed for tax
by the BIR. To pay the assessed taxes, they
bought managers checks from petitioner bank. None
of these checks were paid to the BIR. They
were found to have been deposited in the account
of a third person in Security Bank. As the taxes
remained unpaid, the BIR issued a levy, distraint and
garnishment against the three networks. An
action was filed wherein it was decided that the
networks should be reimbursed for the amounts of the
checks by petitioner bank and the latter in turn, must
be reimbursed by Security Bank. In the appellate
court, it was held that Traders Bank should be
the only bank liable.
NEGO - Quevedo 30
Camille Umali
HELD:
Petitioner ought to have known that where a check is
drawn payable to the order of one person and is
presented for payment by another and purports upon
its face to have been duly indorsed by the payee of
the check, it is the primary duty of the petitioner
to know that the check was duly indorsed by the
original payee, and it pays the amount of the check to
the third person, who has forged the signature of the
payee, the loss falls upon the petitioner who cashed
the check. Its only remedy is against the person
to whom it paid the money.
It should be further noted that one of the checks was
a crossed check. The crossing of the check
should have put petitioner on guard; it was duty-
bound to ascertain the indorsers title to the
check or the nature of his possession.

TOLMAN V AMERICAN NATL BANK
48 Atl 480, 52 LRA 877 (1901)
~giulia~
FACTS
Tolman sues to recover money paid out by the
defendant on his account, upon his check, under
a forged indorsement. Potter, representing
himself as Haskell, went to the plaintiff to get a
loan of money, giving the residence and
occupation of Haskell as his own. The plaintiff
made an inquiry on Haskell and founding that the
residence and occupation correct thereby agreed
to nake the loan. Potter, under the name of
Haskell, gave the note to the plaintiff, and the
plaintiff gave him a check on the defendant
payable to the order of Haskell, delivering it to
Potter, supposing him to be Haskell. Potter
indorsed Haskell's name on the back of the
check, and gave it to AB Homes, who collected it
from the bank. When the note given to the
plaintiff became due, fraud was discovered. He
thereupon notified the ank, and demanded the
return of the amount paid on the check to the
credit of his account.
ISSUE
WON the bank is liable for the payment which it made
on the check,
Held
Ratio
NEGO - Quevedo 31
Camille Umali
Yes. When a bank receives money to be checked out
by a depositor, it is to be paid only as the
depositor shall order. The bank assumes this
duty in receiving the deposit. If the bank pays
money out on a forged signature, the depositor
being free from balme or negligence, it must bear
the loss.
Reasoning
In this case the money was intended to Haaskell,
because his was the only name suggested. He
had been looked up and found to be responsible.
It is a perversion of words to say that it was
intended for Potter simply because he had
fraudulently impersonated Haskell, and led the
plaintiff to believe the he was Haskell. The
plaintiff did not intend Potter to have the money.
When Potter fraudulently indorsed Haskell's
name on the check, it was a typical case of
forgery.
When a signature is forged or made out without the
authority of the person whose signature it
purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give discharge
therefor, or to enforce payment thereof, against a
party thereto, can be acquired through or under
such signature, unless a party against whom it is
sought to enforce such right is precluded from
setting up forgery or want of authority

SNYDER V CORN EXCHANGE NATL BANK
70 Atl. 876 (1908)
~ajang~
FACTS
-Action was filed by Snyder, individually and trading
as Harrison, Snyder & Son against Corn
Exchange National Bank. Snyder wants to
recover the amount of the checks which were
wrongfully paid by the bank.
-George Snyder is a broker, trading and doing
business under the name of Harrison, Snyder &
Son. He is a depositor at the Corn Exchange
National Bank. He had in his employ a clerk
named Edwin Greenfield, an attorney, who was
authorized to draw checks in his name against
his deposit in the said bank. Greenfield drew 4
checks payable to the order of Charles Niemann
with a total amount of $ 18, 387.50. These
checks were paid by the bank and charged to the
account of Snyder.
-The checks were said to have been indorsed by
Neimann, but these indorsements were forgeries
and were never authorized by him or Snyder.
They were said to have been indorsed in blank to
R.M. Miner & Co., a copartnership purporting to
caryy on a stock and grain brokerage business
but is actually conducting a gambling
establishment popularly known as a bucket
shop.
-The 4 checks were deposited by R.M. Miner to Real
Estate Title Insurance & Trust Company of
Philadelphia. The trust company then indorsed 3
of the 4 checks to guarantee previous
indorsements to certain banks in Philadelphia for
collection. The 4th check was also indorsed by
the trust company but without guaranteeing the
previous indorsements.
-Corn Exchagne Bank, relying upon the guaranty by
the trust company, paid each of the checks to the
trust company through its collecting agents.
-Based on the averments that, the indorsements
purporting to be those of Charles Niemann were
forgeries; that the trust company collected the
proceeds of the checks without actual knowledge
of the character of the business of R.M. Miner;
that Corn Exchange Natl Bank had constructive
notice of the business of the firm; and that the
NEGO - Quevedo 32
Camille Umali
said checks were not given in due course of the
business.
-Snyder wants to recover from the bank the amounts
drawn from its account.
ISSUE
WON Snyder may recover
HELD: NO.
-The bank said that Neimann was not a real, bona
fide payee, but was in legal contemplation, a
fictitious personand such fact was known to
Greenfield when he drew the checks, in his
capacity as Snyders attorney/agent. Neimann
may have been an existing person, but
nevertheless, he was a fictitious name within the
meaning of the act of assembly as Greenfield
only intended to use this name and never
intended for him to receive the checks or have
any right to them.
-A check is payable to bearer when it is payable to the
order of a fictitious or nonexisting person, and
such fact was known to the person making it so
payable.
-The intent of the drawer in inserting the name of the
payee is the sole test of whether the payee is a
fictitious person.
-In such case, there could be no recovery.
-When the checks were delivered to R.M. Miner, they
were shown as payable to bearer and nothing
therefore need be said in the contention of
Snyder as to the liability of the trust company to
the bank upon the guaranty of the indorsements
on the checks.
-The checks drawn by Greenfield are made as if
drawn by Snyder himself. And when Snyder
lodged with Greenfield with this power, it is as if
he said to the bank that any check drawn by
Greendield should be paid by it as if it was made
and issued by him. The court said that if this is
not enough to protect the bank from liability for
mispayments from his account, it is not easy to
conceive what else would be.

CLEARFIELD TRUST CO V UNITED STATES
318 US 363, 63 S.S. Ct. 573 (1943)
~glaisa~
FACTS
-A check was drawn on the Treasurer of the US
through the Federal Reserve Bank of
Philadelphia to the order of Clair Barner in the
amount of $24.20.
-It was dated aat Harrisburg, Pennsylvania and was
drawn for the services rendered by Barner to the
Works Progress Administration.
-The check was placed at the mail addressed to
Barner but he did not receive the check.
-Some unknown person obtained it and presented it
to JC Penney Co. store representing that he was
the payee and endorsed the check in the name of
Barner and transferred it to JC Penney Co. in
exchange for cash and merchandise.
-JC Penney Co. endorsed the check to Clearfiled
Trust Co. which accepted it as an agent and
endorsed it as follows: Pay to the order of
Federal Reserve Bank, Prior endorsements
guaranteed
-Clearfield collected check from the US and paid the
full amount to JC Penney.
-Neither Clearfield nor JC Penney had any knowledge
or suspicion of forgery
-US filed a case against Clearfield based on the
express guaranty of prior endorsements made by
Clearfield.
-District Court held that the rights of the parties were
to be determined by the law of Pennsylvania and
since the US unreasonably delayed in giving
notice to the forgery to Clearfield, it was barred
from recovery. Circuit CA reversed.
NEGO - Quevedo 33
Camille Umali
ISSUE
WON US is barred from recovery
HELD: NO
-He who presents a check for payment warrants that
he has title to it and the right to receive payment.
If he has acquired the check through forged
endorsement, the warranty is breached at the
time the check is cashed. The drawees right to
recover accrues when the payment is made.
There is no other barrier to the maintenance of
cause of action. The theory of the drawees
responsibility where the drawers signature is
forged is inapplicable here. The drawee, whether
it be the US or another, is not chargeable with the
knowledge of the signature of the payee.
-Prompt notice of discovery of forgery was not a
condition precedent to suit. If it shown that the
drawee on learning of the forgery did not give
prompt notice of it and that damages resulted,
recovery by the drawee is barred.
-But we do not think that he who accepts a forged
signature of a payee deserves a preferential
treatment. It is his neglect or error in accepting
the forgers signature which occasions the loss.
He should be allowed to shift that loss to the
drawee only upon clear showing that the
drawees delay in notifying him of the forgery
caused him damage. No such damage has been
shown by Clearfield.

DETROIT PISTON RING CO. V
WAYNE COUNTY & HOME SAVINGS BANK
252 Mich. 163, 233 N.W. 185 (1930)
~tito_romy~
FACTS
-Helen Culbert was a trusted payroll clerk of Detroit
Piston. She prepared the biweekly payroll and
the checks corresponding therewith. She would
then have these signed by the officer of the
Company who would sign the same without
question. Unbeknown to the Company, Culbert
was also preparing checks to the order of non-
existing persons or former employees which she
subsequently indorsed in the names of the
payees and negotiate them to other banks or
stores. The drawee bank would then pay the
same and debit Detroit for the corresponding
amount.
-The cancelled checks were then returned to the
company on the first of each month. the
bookkeeper would then compare the balance on
the bank statement with Detroits own book. She
would then sign a receipt containing the
stipulation if no error is reported in ten days the
account will be considered correct.
-Because of the increased cost due to the activities of
Culbert, the Company employed auditors to
ascertain the reason for said increased costs.
However, the auditors (it should have employed
Ricky if they really wanted to get to the bottom of
the problem) failed to discover the cause.
-As it turned out, the fraud could have been easily
discovered if someone just compared the payroll
sheet with the time cards punched by employees
in the time clock.
-The company finally discovered the defalcation
amounting to $28,066.66. The Company sued
Wayne County & Home Savings alleging
negligence in paying the questioned checks and
claiming reimbursement of the above amount
NEGO - Quevedo 34
Camille Umali
plus interests thereon.
-The lower court found for Detroit. Hence the
appeal.
ISSUE
WON Detroit was negligent in the issuance of the
checks and thus estopped from asserting claims
against the Bank
HELD: YES
Ratio The estoppel of the depositor, on the ground of
negligence, to recover for an unauthorized
payment, is based on the failure of the depositor
to act as a prudent businessman in issuing his
checks.
Reasoning At the beginning of the period during
which the fraudulent checks were issued, the
only negligence on the part of the Company
consisted in the failure of its officers to make a
thorough check of the payroll. Each time the
checks were issued, the officers signing them
would compare the checks with the payroll, but at
no time was a complete investigation made, i.e.,
a comparison of the checks with the time cards,
nor was an audit of the payroll ever made. It is
perfectly clear that a complete investigation
would have disclosed the fraud at once.
-A depositor may not sit idly by after knowledge has
come to him that his funds seem to be
disappearing or that there may be a leak in his
business, and refrain taking steps that a careful
and prudent businessman would take in such
circumstances, & w/c if taken would result in
stopping the issuances of fraudulent checks.
Disposition Judgment reversed.

MONTINOLA V PHIL. NATL BANK
88 PHIL 178; Montemayor; February 26, 1951
FACTS
-Ramos is disbursing officer of USAFFE. As such,
he went to the Province of Lanao to procure a
cash advance in the amount of P800K for the
use of USAFFE. Encarnacion, Provincial
Treasurer of Lanao did not have that amount
in cash. So, he gave Ramos P300K in
emergency notes and a check for P500K.
Ramos went to the office of Laya, the
Provincial Treasurer of Misamis Oriental and
ex officio agent of PNB branch in Misamis
Oriental, to encash the check for P500K which
he had received from Encarnacion. Ramos
worked under him as assistant agent in the
bank branch and Ramos got the job as
disbursing officer from the recommendation
of Laya. Note that the currency being used in
Misamis Oriental and Lanao which had not
yet been occupied by the Japanese invading
forces, was the emergency currency. Laya
did not have enough cash to cover the check
so he gave Ramos P400K in emergency notes
and a check for P100,000 drawn on PNB.
According to Laya, he had previously
deposited P500,000 emergency notes in PNB
Cebu and he expected to have the check
issued by him cashed in Cebu against said
deposit. Ramos had no opportunity to cash
the check because in the evening of the same
day the check was issued to him, the
Japanese forces entered the capital of
Misamis Oriental, and the USAFFE forces
surrendered. Ramos was made a prisoner of
war until 1943. In 1945, Ramos allegedly
indorsed this check (P100K) to Montinola.
-However, Montinola alleges that in 1944, Ramos,
needing money to buy foodstuffs and
medicine, offered to sell him the check.
Montinola, with his agents and Ramos, went
to see President Carmona of PNB Manila to
check the genuineness of said check; after
examining it President Carmona told him that
it was negotiable but that he should not let
the Japanese catch him with it because
possession of the same would indicate that
he was still waiting for the return of the
Americans to the Philippines. He and Ramos
finally agreed to the sale of the check for
P850,000 Japanese military notes, payable in
installments; that of this amount, P450,000
was paid to Ramos in Japanese military notes
in five installments, and the balance of
P400,000 was paid in kind, (4 bottles of
sulphatiasole, each bottle containing 1,000
tablets, and each tablet valued at P100).
Upon payment of the full price, Ramos duly
indorsed the check which now appears on the
back of the document:
NEGO - Quevedo 35
Camille Umali
-"The words, 'pay to the order of ' -in rubber
stamp and in violet color are placed about
one inch from the top. This is followed by the
words 'Enrique P. Montinola' in typewriting
which is approximately 5/8 of an inch below
the stamped words 'pay to the order of'.
Below 'Enrique P. Montinola', in typewriting
are the words and figures also in typewriting,
'517 Isabel Street' and about 1/8 of an inch
therefrom, the edges of the check appear to
have been burned, but there are words
stamped apparently in rubber stamp which,
according to Montinola, are a facsimile of the
signature of Ramos. There is a signature
which apparently reads 'M. V. Ramos' also in
green ink but made in handwriting."
-M. V. Ramos is handprinted in green ink, under
the signature. According to Montinola, he
asked Ramos to handprint it because Ramos'
signature was not clear. Ramos in his turn
told the court that the agreement between
himself and Montinola regarding the transfer
of the check was that he was selling only
P30,000 of the check and for this reason, at
the back of the document he wrote in
longhand the following:
"Pay to the order of Enrique P. Montinola P30,000
only. The balance to be deposited in the
Philippine National Bank to the credit of M. V.
Ramos."
-Ramos further said that in exchange for this
assignment of P30,000 Montinola would pay
him P90,000 in Japanese military notes but
that Montinola gave him only two checks of
P20,000 and P25,000, leaving a balance
unpaid of P45,000. In this he was
corroborated by Atty. Ramos Jr
-The indorsement or writing described by M. V.
Ramos which had been written by him at the
back of the check does not now appear at the
back of said check. What appears thereon is
the indorsement testified to by Montinola and
described by the trial court as reproduced
above. Before going into a discussion of the
merits of the version given by Ramos and
Montinola as to the indorsement or writing at
the back of the check, it is well to give a
further description of it as we shall do later.
-Montinola filed a complaint in the CFI Manila
against PNB and the Provincial Treasurer of
Misamis Oriental to collect the sum of P100K
the amount of a check issued on 1942 by the
Provincial Treasurer of Misamis Oriental to
Ramos and supposedly indorsed to
Montinola.
I. When Montinola filed his complaint in 1947 he
stated therein that the check had been lost,
and so in lieu thereof he filed a supposed
photostatic copy. However, at the trial, he

presented the check itself and had its face
marked and the back thereof. But the check is
badly mutilated, blotted, torn and partly
burned, and its condition can best be
appreciated by seeing it. In explanation of the
mutilation of the check Montinola told the
court that several months after indorsing and
delivering the check to him, Ramos
demanded the return of the check to him,
threatening Montinola with bodily harm, even
death by himself or his guerrilla forces if he
did not return said check, and that in order to
justify the non-delivery of the document and
to discourage Ramos from getting it back, he
(Montinola) had to resort to the mutilation of
the document.
II. Laya stated that he issued the check only his
capacity as Provincial Treasurer, and that the
words in parenthesis "Agent, Phil. National
Bank" now appearing under his signature did
not appear on the check when he issued the
same. The words 'Agent, Phil. National Bank'
which now appear on the check were not
typewritten below his signature when he
signed the said check and delivered the same
to Ramos. According to Laya, when he
issued checks in his capacity as agent of PNB
Misamis Oriental the said check must be
countersigned by the cashier of the said
agency -not by the provincial auditor.
Montinola on the other hand said that when
he received the check it already bore the
words 'Agent, Phil. National Bank' below the
signature of Laya and the printed words
'Provincial Treasurer'.
-TC: dismissed the complaint. Montinola
appealed directly to this Court because the
amount exceeds P50,000
ISSUES
1. WON the photostatic copy of the check is
acceptable given its mutilated condition
2. WON the words, 'Agent, Phil, National Bank'
were added after Laya had issued the check
TF issued in the capacity as agent of PNB
3. WON Ramos added or placed those words "in
his capacity as Provincial Treasurer of
Misamis Oriental" (obviously, not as agent of
the Bank) below the signature of Laya before
transferring the check to Montinola
4. WON there was valid negotiation (P30,000 only
indorsed)
HELD
1. NO
-a comparison between the photostatic copy and
the original check reveals discrepancies
between the two. The condition of the check
as it was produced is such that it was
partially burned, partially blotted, badly
mutilated, discolored and pasted with
cellophane. What is worse is that Montinola's
NEGO - Quevedo 36
Camille Umali
excuse as to how it was lost, that it was
mixed up with household effects is not
plausible, considering the fact that it involves
his life savings, and that before the alleged
loss, he took extreme pains and precautions
to save the check from the possible ravages
of the war, had it photographed, registered
said check with the General Auditing Office
and he knew that Ramos, since liberation,
was not after the possession of that check.
2. NO
-If he issued the check as agent of the PNB, then
the bank is not only drawee but also a drawer
of the check, and Montinola evidently is trying
to hold PNB liable in that capacity of drawer,
because as drawee alone, inasmuch as the
bank has not yet accepted or certified the
check, it may yet avoid payment.
-What renders more probable the testimony of
Laya and Ramos the money for which the
check was issued was expressly for the use
of USAFFE of which Ramos was then
disbursing officer. And upon delivery of
P400K in emergency notes and the P100K
check to Ramos, Laya credited his depository
accounts as provincial treasurer with the
corresponding credit entry. In the normal
course of events the check could not have
been issued by the bank, and this is borne by
the fact that the signature of Laya was
countersigned by the provincial auditor, not
the bank cashier.
-said check was issued by the provincial treasurer
of Lanao to Ramos who requisitioned the said
funds in his capacity as disbursing officer of
the USAFFE. The check is not, in business
parlance, 'certified check' or 'cashier's check.'
3. NO
-Naturally, Ramos must have known the
procedure followed as to the issuance of
checks, namely, that when a check is issued
by the Provincial Treasurer, it is
countersigned by the Provincial Auditor as
was done on the check. And that if the
Provincial Treasurer issues a check as agent
of the PNB, the check is countersigned not by
the Provincial Auditor who has nothing to do
with the bank, but by the bank cashier, which
was not done in this case. It is not likely,
therefore, that Ramos had made the insertion
of the words "Agent, Phil. National Bank"
after he received the check, because he
should have realized that following the
practice already described, the check having
been issued by Laya as Provincial Treasurer,
and not as agent of the bank, and since the
check bears the countersignature not of the
Bank cashier but of the Provincial Auditor,
the addition of the words "Agent, Phil.
National Bank" could not change the status
and responsibility of the bank. It is therefore
more logical to believe and to find that the

addition of those words was made after the
check had been transferred by Ramos to
Montinola.
4. NO
-The check was not legally negotiated within the
meaning of the Negotiable Instruments Law.
Section 32 of the same law provides that "the
indorsement must be an indorsement of the
entire instrument. An indorsement which
purports to transfer to the indorsee a part
only of the amount payable, . . . (as in this
case) does not operate as a negotiation of the
instrument." Montinola may therefore not be
regarded as an indorsee. At most he may be
regarded as a mere assignee of the P30,000
sold to him by Ramos, in which case, as such
assignee, he is subject to all defenses
available to the drawer Provincial Treasurer of
Misamis Oriental and against Ramos.
IN SUMMARY
-Montinolas complaint cannot prosper because
1) Check long overdue by about 2 1/2 years. It
may therefore be considered even then, a
stale check.
2) The insertion of the words "Agent, Phil.
National Bank" which converts the bank from
a mere drawee to a drawer and therefore
changes its liability, constitutes a material
alteration of the instrument without the
consent of the parties liable thereon, and so
discharges the instrument. (Section 124 of the
Negotiable Instruments Law).
3) The check was not legally negotiated within the
meaning of the Negotiable Instruments Law.
Section 32 of the same law provides that "the
indorsement must be an indorsement of the
entire instrument. An indorsement which
purports to transfer to the indorsee a part
BANK OF COMMERCE OF SULPHUR V WEBSTER
70 Okla. 73, 172 942 (1918)
~maia~
FACTS
SUBJECT: a note of guaranty (this is the negotiable
instrument in question) was executed by Webster
and Molacek as guarantors, guaranteeing to the
Bank of Commerce of Sulphur the payment of
two notes issued by Crafton ($1,450 and $204)
MAKERS: of the 2 notes Crafton; Note of
Guarantee (guaranteeing the notes) Webster
and Molacek
PAYEE: Security State Bank
INDORSEE: Bank of Commerce of Sulphur (current
holder)
-The note of guarantee was executed when the notes
(to be guaranteed) were transferred from Security
State Bank to Bank of Commerce. When Bank of
Commerce sued for the fulfillment against the
guarantors, the guarantors interposed the
defense that they were relieved of liability since
the note issued by Crafton had been materially
altered. The alteration consists of having the wife
NEGO - Quevedo 37
Camille Umali
only of the amount payable does not operate
as a negotiation of the instrument." Montinola
may therefore not be regarded as an
indorsee. At most he may be regarded as a
mere assignee of the P30,000 sold to him by
Ramos, in which case, as such assignee, he
is subject to all defenses available to the
drawer Provincial Treasurer of Misamis
Oriental and against Ramos.
4) He should have known that a check for such a
large amount of P100K could not have been
issued to Ramos in his private capacity but
rather in his capacity as disbursing officer of
the USAFFE, and that at the time that Ramos
sold a part of the check to him, Ramos was
no longer connected with the USAFFE but
already a civilian who needed the money only
for himself and his family.
5) Ramos had he retained the check may not now
collect its value because it had been issued to
him as disbursing officer. As observed by the
trial court, the check was issued to M. V.
Ramos not as a person but M. V. Ramos as
the disbursing officer of the USAFFE.
Therefore, he had no right to indorse it
personally to plaintiff. It was negotiated in
breach of trust, hence he transferred nothing
to the plaintiff.
6) It is absolutely necessary for the court to
examine the original in order to see the actual
alterations supposedly made thereon, and
that should this Court grant the prayer
contained in the bank's brief that the check be
later referred to the city fiscal for appropriate
action, said check may no longer be available
if the appellant is allowed to withdraw said
document.
of maker Crafton (Lizzie Crafton) sign the note at
the instance of the Bank of Commerce after
execution and delivery of the guaranty. (note: it
seems that in effect, Lizzie became a co-maker
to the note)
-Trial court held that the signing of Lizzie at the
instance of the Bank of Commerce, without
knowledge and consent of the guarantors, was
an alteration that defeated the guaranty
ISSUE
WON the signing of the notes by Lizzie Crafton after
the execution and delivery of the contract of
guaranty without the consent and knowledge of
the guarantors released and discharged the
guarantors from the contract of guaranty
HELD: YES
-the adding of an additional party to a negotiable
instrument subsequent to its execution and

delivery discharges the original parties when
such change is made without their knowledge or
consent
-the reason why the addition of a name to a note as a
joint maker, after its issuance, materially alters it,
is because it changes the number of parties and
their relative rights, the rate of contribution, and
the character and description of the instrument
-a guarantor is exonerated, except as far as he may
be indemnified by the principal, if by any act of
the creditor, without the consent of the
guarantor, the original obligation of the principal
NEGO - Quevedo 38
Camille Umali
is altered in any respect, or the remedies or rights
of the creditor against the principal in respect
thereto, in any way impaired or suspended.
-the addition of the name of Lizzie to the note,
payment of which the guarantors guaranteed,
changed the identity of the said note and its
effect and operation, and such alteration being
made without the consent and knowledge of the
guarantors, the guarantors are discharged from
their liability on the guaranty,
Disposition Judgment affirmed.

FOUTCH V ALEXANDRIA BANK & TRUST CO
177 Tenn 348; (1941)
~da~
FACTS
W.L. Foutch purchased a cow from B.W. Foutch for
$18 for which he gave a check to B.W. Foutch,
payable to his order. This check was wholly
written by the payee (because it was W.L.'s
practice to have the checks filled filled out by the
parties to whim the check was made).
In the check in issue: there was a space between the
dollar sign and the amount in numbers and the
amount in words was written midway of the line
provided for it and in the lower left corner for
cow and when presented it already bore $418,
four hundred eighteen dollars and for cow and
note. All the figures and writings in the check
were in the same writing except for the signature
when it was presented to the bank.The bank paid
to B.W. Foutch the sum $418 called for by the
check, and charged it to the account of the
drawer.
Issue: WON the the bank is liable for the overdraft (or
should W.L. Foutch bear the loss)
Held: The bank is not liable because it was the
plaintiff 's negligence which approximately
caused the loss and the bank is not guilty of any
negligence that contributed to the loss.
NEGO - Quevedo 39
Camille Umali
There is a distinction between bank checks and
negotiable instruments of the note and bill class.
One who purchases a note, or like negotiable
instrument, is under no manner of compulsion
and acts purely at his option or election, under
which circumstances it is not inappropriate to
apply, by analogy the caveat emptor rule;
whereas, the Bank is under a direct and
peculiarly delicate obligation,which requires
prompt discharge, usually with little opportunity
for investigation to pay the check of its depositor
,upon presentation, or subject itself to the risk f
damages. Furthermore the depositor on the other
hand,owes to his bank the duty to exercise care
in drawing checks in order to avoid possible loss.
The drawer of this check in this case authorized the
payee to fill out the check,not only in pencil,which
made the added words and figures raising the
check particularly easy to insert and well high
impossible to detect,there being no such variation
as frequently appears when different ink is used,
but the payee having been authorized to fill out
the check in his handwriting,with the words and
figures placed as herein before shown, no
possibility of detection of the check having been
thus raised was left open to the Bank.

SAVINGS BANK OF RICHMOND V NATL BANK OF GOLDSBORO
39 A.L.R. 1374 (1925)
~bry_sj~
FACTS
-A.C. Norwood (DRAWER), President of the National
Bank of Goldsboro issued a certain draft dated
March 29, 1918 for the sum of $6, drawn against
the FIRST NATIONAL BANK OF NEW YORK
(the DRAWEE) payable to the order of N.L.
Massie.
-The said draft was thereafter unlawfully and without
the knowledge or consent of A.C. Norwood or the
Goldsboro Bank, fraudulently forged and altered
in material respects. The date was changed from
March 29, 1918 to June 21, 1918, and the
amount thereof from $6 to $8,470.
-Massie sold the altered draft to the SAVINGS BANK
OF RICHMOND, with whom he had been
transacting with for two years. Trusting Massies
moral and financial strength, the SAVINGS BANK
OF RICHMOND purchased the draft for $8,470
giving him in exchange a cashiers check for the
same amount. When the Savings Bank
attempted to collect it, only then did it find out that
the draft was forged.
-In this suit, the Savings Bank insists that the National
Bank of Goldsboro (THE DRAWER) should be
liable on the theory that it was negligent or amiss
in its duty to ensure that the draft is safe from
every reasonable chance of alteration. Ordinary
paper was used and that there was no
protectograph or other safety device to prevent
alteration. Daniel, a commentator on the
negotiable instruments law is cited as authority
for the liability of the drawer of a bill or the maker
of a note who by careless execution of the
instrument left room for any alteration, insertion
or erasure, which would prejudice the bona fide
holders rights.
-The Goldsboro Bank counters that with a completed
draft, losses arising from its subsequent
alteration and forgery do not fall upon it but rather
upon those who have chosen to accept the same
as changed. Assuming that the argument of
Savings Bank to be valid, it will not be liable
because it is not the proximate cause of the loss.
ISSUES
NEGO - Quevedo 40
Camille Umali
1. WON Savings Bank can recover from point of view
of tort or negligence.
2. WON Bank can recover from the draft as a contract
btwn the parties.
3. WON Savings Bank can recover from the
negotiable instrument.
HELD
1. NO. The issuing of the note could in no sense be
considered as proximate cause of the loss.
Where a negotiable note was delivered in
completed form, the possibility that it might be
altered by the willful fraud or forgery of another
was too remote to afford basis of an action either
in tort or in contract.
2. NO. The note in its forged and altered state is not a
contract of the maker of the instrument. Thus, a
suit based on contract can neither prosper.
3. YES, but only as to the original face value of the
draft. Section 3106 of the Negotiable Instruments
Law of North Carolina provides:
Where a negotiable instrument is materially altered
without the assent of all parties liable thereon, it
is avoided except as against the party who has
himself made, authorized or assented to the
alteration and subsequent indorsers. But when
the instrument has been materially altered and is
in the hands of a holder in due course, not a
party to the alteration, he may enforce payment
thereof according to the original tenor.
BSJ Comment: In other words, HIDC enjoys status as
such only to the extent of the original amount as
written by drawer or maker in a proper case. The
Court seems to consider it as a fair rule that
nobody should be liable for more than what s/he
originally bargained for. Impliedly, it seems to say
that the HIDC albeit protected by the law still has
some duty to conduct reasonable inquiry
especially when transactions involve huge sums
of money. Certainly 8,000 dollars is a huge
amount in the 1920s. The Courts ruling here
could be justified under the common law rule: as
between two innocent persons, the one whose
acts occasioned the loss shall suffer the
consequences. Here, Savings Banks own
negligence is the proximate cause of the loss.]

CRITTEN V CHEMICAL NATL BANK (1902)
NY Court of Appeals; 171 NY 219; 63 N.E. 969, 57 LRA 529
~mel~
FACTS
-Plaintiff kept a large and active account with the
defendant. The Plaintiffs employed a clerk named
Davis. It was the duty of Davis to fill up the
checks which it might be necessary for the
plaintiffs to give in the course of business, top
make corresponding entries in the stubs of the
check book, and present the checks so prepared
to Mr. Critten, one of the plaintiffs, for signaturem
together with the bills in payment of which they
were drawn. After signing a check Critten would
place it and the bill in an envelope addressed to
the proper party, seal the envelope and put it in
the mailing drawer.
-in 24 separate instances, Davis abstracted one of the
envelopes from the mailing drawer, opened it,
obliterated by acids the name of the payee and
the account specified in the checks, then made
the check payable to cash and raised its amount,
in the majority of cases, by the sum of $100. he
would draw the money on the checks so altered
from the defendant bank, pay the bill for which
the check was drawn in cash, and appropriate
the excess. On one occasion David did not
collect the altered check from the defendant, but
deposited it to his own credit in another bank.
When a check was presented to Critten for
signature the number of dollars for which it was
drawn would be cut in the check by a punching
instrument. When Davis altered a check he would
punch a new figure in front of those already
appearing in the check. This work has been
entrusted to another person in Davis absence,
hence the forgeries were discovered and Davis
was arrested and punished. Hence this action to
recover the amount of these forged checks, over
and above the sums for which they were
originally drawn
ISSUES
1. WON plaintiff is guilty of negligence
2. WON by negligence in its discharge or by the
failure to discover and notify the bank, the
depositor (plaintiff) is estopped from asserting
that they are forgeries
3. WON defendant bank can claim relief from
plaintiffs negligence
HELD
1. YES In this case, Davis falsified the additions or
total sat the foor of the pages in the check book.
But with a few exceptions he did not alter the
amounts expressed in the stubs. In no case did
he change in the stubs the name of the payee of
the check. It is clear therefore that at all times a
comparison of the returned checks with the stubs
in the checkbooks would have exposed the
alterations made in the checks. Of course the
NEGO - Quevedo 41
Camille Umali
knowledge of the forgeries that davis possessed
from the fact that he himself was the forger, was
in no respect to be attributed to the plaintiffs. the
Court sees no reason why they were not
chargeable with such information as a
comparison of the checks with the check book
would have imparted to an innocent party
previously unaware of the forgeries. As regards
the failure to discover the forgeries after the
return of the checks and the balancing of the
account in the passbook. As held in Weissers
admrs vs Denison, the rule is settled that the
depositor owes his bank the duty of a reasonable
verification of the returned checks. . If the
depositor has by his negligence in failing to
detect forgeries in his checks and give notice
thereof caused loss to his bank, either by
enabling the forger to repeat his fraud or by
depriving the bank of an opportunity to obtain
restitution, he should be responsible for the
damage caused by his default but beyond this his
liability should not extend. Moreover, the court
sees no reason why the bank should be entitled
to anything more than indemnity for the loss the
depositors negligence has caused it *The Court
also made a finding that the ordinary rule of
principal and agent or master and servant that
the principal or master is liable for the fault of his
servant or agent in the masters business apply in
this case.
2. NO .While the Court hold that this duty rests upon
the depositor, it does not accept the doctrine
asserted in some of the cases that, by negligence
in its discharge or by the failure to discover and
notify the bank, the depositor either adopts the
checks as genuine and ratifies their payment or
estops himself from asserting that they are
forgeries. In the present case, a check altered by
Davis from the sum of $22 to $622 was paid by
the defendant to the Colonial Bank in which
Davis had deposited it. Against the bank the
defendant has ample recourse. If it were to be
held that the plaintiffs are estopped from denying
the genuineness of that check as against the
defendant, the latter could have no claim against
the Colonial Bank, nor is it clear that the plaintiffs
would have any direct right of action against that
Bank. The Colonial bank took the check solely on
the responsibility of Davis. To it the plaintiffs
owed no duty. A rule which might operate to
relieve the bank from the liability it assumed
when it collected an altered check, merely
because the plaintiffs failed in their duty, not ti it,
but to a third party should not be upheld. Nor
would it operate justly in a case in which the bank
had paid a single forgery unless by the
depositors default and delay the bank had lost its
opportunity to secure restitution.

3. NO. It was held that the defendant was also guilty
of negligence in paying the check. The sixth in
sequence of these forgeries was a check with the
name of the payee erased and cash written in
the place thereof. The teller of the defendant who
paid the check and was a witness on its behalf
testified that the check showed on its face that
the word cash had been written in the place for
the payees name over an erasure; that it was in
such mutilated condition when it was presented
to him that, before paying it he required Davis to
indorse upon the check a receipt for its amount.
Had Davis been required to obtain the
indorsement or guaranty of the plaintiffs as to its
correctness, the forgeries of Davis would have
been exposed, and their repetition would not
have occurred.The action brought by plaintiffs
was brought on contract, not on tort for the
NEGO - Quevedo 42
Camille Umali
allegation of negligence on the part of the
defendant is used only to defeat its claim for relief
on account of the plaintiffs negligence.
Disposition The judgment should be reversed, and a
new trial granted.
DISSENTING OPINION Since plaintiffs entrusted the
work to a competent agent and, as established
by evidence, took other precautions, there was
evidence to support the finding in their favor. The
rule which imputes to a principal knowledge
acquired by his agent rest upon the presumption
that the latter has disclosed all the material facts
to the former. This presumption does not extend
to a fact which, if disclosed would subject the
agent to a prosecution for crime or defeat a
scheme in which he was engaged to defraud his
employer.

MARINE NATL BANK V NATL CITY BANK (1874)
Court of Appeals of NY, 59 NY 67 (1874)
~eva~
FACTS
SUBJECT: A check for $25 (but was altered later)
DRAWER: Lunt Brothers
DRAWEE: Marine National Bank
PAYEE: To the order of Henry Smith
-Lunt Brothers who were merchants in NY gave a
stranger the $25-check in exchange for the same
amount.
-The next day, a person called upon Derippe & Co
(gold brokers in NY) stating that he wished to buy
some gold for Lunt Brothers, and asked $3334
gold in currency. A memo, giving the amount as
$4079.96 was delivered to him.
-The person then altered the $25-check by erasing
the date, payee, and amount, and inserting
Dec.2,1969, payee Derippe & Co, amount
$4079.96, sent the check to Marine for
certification, and upon presentation it was duly
certified, and thereupon, Derippe without notice,
and being ignorant of the alteration and relying
upon the certification, gave to the person the sum
of $3334 American gold, receiving in payment the
certified check.
-Derippe indorsed the check and deposited it in
National City Bank. Marine Bank paid the check
to Natl City Bank, but requested repayment of
the amount immediately when it discovered the
alterations. Natl City Bank refused to repay the
same. Before the discovery of the alteration, both
banks believed the check to be genuine.
-Judgment was rendered for Marine Bank on the
ground that it did not guarantee the genuineness
of the filling out of the check by certifying, and so
NEGO - Quevedo 43
Camille Umali
it was not estopped from showing the alteration,
and was entitled to the repayment.
ISSUE
WON Marine National Bank is entitled to the
repayment.
HELD: YES
-That an acceptor of a bill of exchange by acceptance
only admits the genuineness of the signature of
the drawer, and does not admit the genuineness
of the indorsements...or any other part of the bill,
is elementary and sustained by an unbroken
current of authority. The reason is that when the
bill is presented for acceptance the acceptor
looks to the handwriting of the drawer with which
he is presumed to be acquainted...But the
acceptor cannot be presumed to have any such
knowledge of the other facts upon which the
rights of the holder may depend.
-The doctrine is applied to cases of bills altered in the
body, by the raising of the amount for which they
were drawn, and also to those in which the name
of the payee has been feloniously changed.
-The drawee is presumed to be acquainted with the
drawers signature, but to require the drawee to
know the handwriting of the residue of the bill is
unreasonable. It would, in most cases, be
requiring an impossibility. Such a rule would be
not only arbitrary and rigorous, but unjust.
Disposition Judgment affirmed.

WELLS FARGO BANK & UNION TRUST CO V BANK OF ITALY
SC of California; 214 Cal. 156, 4 P. 2d 781 (1944)
~jat~
FACTS
SUBJECT: A check drawn on Wells Fargo Bank by
McCormick Co. made payable to order of Albert
Meyer Co. was altered. The name of the payee
thereon was erased and the name of one Harry
Behling was substituted.
DRAWER: McCormick Steamship Company
DRAWEE: Wells Fargo Bank
PAYEE: Albert Meyer and Company
-Behling, an employee of steamship co., purchased
clothes from a store owned by a certain Popkin,
and offered the check in question as payment. (It
is not known how Behling got hold of the check).
The 2 then went to drawee bank to have the
check cashed. After presentment, the drawee
bank certified the check but suggested that
Popkin, being a depositor of defendant bank,
should cash it there instead. So defendant bank,
after the check was presented to it, paid the
amount thereof and transmitted it to drawee
bank, which in turn paid the amount of the check
to defendant bank.
-Drawer did not discover the alteration until the
original payee made an inquiry several months
after the check had been paid. Drawer notified
drawee. Drawee then notified defendants (Bank
of Italy and Popkin) demanding repayment of the
amount of the check. Drawee filed action to
recover the sum. Talo. Sa District Court of
Appeals, talo rin.
*Note: The alteration was made with such skill that it
could not be detected. The person responsible
for the alteration is unknown.
NEGO - Quevedo 44
Camille Umali
ISSUE
WON the drawee bank may recover the money it paid
HELD: NO
-Under Sec. 62, the acceptor, by accepting the
instrument, engages to pay according to the
tenor of his acceptance.
-It makes for the usefulness and currency of
negotiable paper to construe the words
according to the tenor of his acceptance as
referring to the instrument as it was at the time it
came into the hands of the acceptor for
acceptance, for he accepts no other instrument
other than the one presented to him-the altered
form-and it alone he engages to pay.
-The presentation of a check to a drawee for payment
is not a negotiation. It involves no warranties as
the drawee is not a holder in due course. A
drawee who has paid the instrument is not a
transferee of title as the last holders indorsement
does not transfer the check but converts it into a
voucher.
-Banking institutions can readily protect themselves
against liability on altered instruments either by
qualifying their acceptance or certification or by
relying on forgery insurance and special paper,
which will make alterations obvious.
Disposition Judgment affirmed

HSBC V PEOPLES BANK AND TRUST CO
G.R. No. L-28226; Fernando; Sept 30, 1970
~kooky~
FACTS:
-On Mar 8, 1965, PLDT drew a check on HSBC in
favor of the same bank in the sum of P14,608.05.
PLDT sent this check to HSBC by mail.
-Florentino Changco somehow got hold of the check,
and was able to erase the name of HSBC as
payee and instead typed his name. Four days
before, Changco had opened a current account
with PBTC, where he deposited the altered
check.
-The check was presented by PBTC for clearing, with
the following indorsement: "For clearance,
clearing office. All prior endorsements and/or lack
of endorsements guaranteed. Peoples Bank and
Trust Company."
-The check was duly cleared by HSBC, and PBTC
credited Changco with the amount of the check.
Changco began to withdraw from the account
then subsequently closed it.
-On Apr 12, 1965 it was returned to PLDT, and the
alteration in the name of the payee was
discovered. On that same date, PBTC was
notified of the alteration, and HSBC requested
PBTC to refund to it the sum of P14,608.05.
PBTC refused.
-HSBC relies on the indorsement (above), arguing
that since such an indorsement carries with it a
concomitant guarantee of genuineness, PBTC is
liable to HSBC for alteration.
-PBTC relies on the "24 hour" regulation of the
Central Bank that requires after a clearing, that
all cleared items must be returned not later than
3:00 PM of the following business day. Since
HSBC advised PBTC 27 days after clearing,
PBTC claims that it is now too late to do so.
-CFI dismissed the complaint based on the fact that
HSBC allowed 27 days to elapse after clearing
before notifying PBTC as to such alteration, the
applicable Central Bank regulation providing for a
24-hour period.
ISSUE:
NEGO - Quevedo 45
Camille Umali
WON the Central Bank regulation should be applied,
and would thus preclude or allow recovery by
HSBC from PBTC
HELD:
YES, it should apply
-The 24-hour clearing house rule issued by the
Central Bank was applied in Republic v.
Equitable Banking Corporation. The rule is
embodied in sec 4(c) of Circular No. 9 of the
Central Bank and reads thus: "Items which
should be returned for any reason whatsoever
shall be returned directly to the bank, institution
or entity from which the item was received. All
items cleared at 11:00 o'clock a.m. shall be
returned not later than 2:00 o'clock p.m. on the
same day and all items cleared at 3:00 o'clock
p.m. shall be returned not later than 8:30 a.m. of
the following business day, except for items
cleared on Saturday which may be returned not
later than 8:30 of the following day." The circular
is clear and comprehensive; the facts of the
present case fall within it.
-Moreover, as mentioned in a case cited by HSBC, "It
is a settled rule that a person who presents for
payment checks such as are here involved
guarantees the genuineness of the check, and
the drawee bank need concern itself with nothing
but the genuineness of the signature, and the
state of the account with it of the drawee." If at
all, then, whatever remedy HSBC has would lie
not against PBTC but as against the party
responsible for changing the name of the payee.
Its failure to call the attention of PBTC as to such
alteration until after the lapse of 27 days would, in
the light of the above Central Bank circular,
negate whatever right it might have had against
defendant Bank.
Disposition Decision affirmed
NOTE: As per Campos, this case illustrates the fact
that the SC comes to the same conclusion, but
on an etirely different basis, as the minority view
regarding the effect of drawees payment or
acceptance of altered check.

REPUBLIC BANK V CA, First Natl City Bank
G.R. No. 42725; April 22, 1991
~aida rose~
FACTS
SUBJECT: Demand for refund by FNCB from
Republic Bank due to clearing by the former of an
altered check
DRAWER: San Miguel Corporation (SMC)
DRAWEE: First National City Bank (FNCB)
PAYEE: J. Roberto Delgado
-SMC drew a divided check worth P240 in favor of
Delgado, one of its stockholders.
-After the check had been delivered, the check was
altered by increasing the amount on its face from
P240 to P9,240. This was done fraudulently and
without the authority of SMC as drawer. The
check was indorsed and deposited on March 14,
1996 by Delgado in his account with Republic
Bank.
-Republic accepted the check without ascertaining its
genuineness and regularity. It endorsed the
check to FNCB with a stamp on the back of the
check, stating: all prior and/or lack of
indorsement guaranteed.
-March 15, 1966: FNCB, believing that the check was
genuine and relying on the guaranty and
endorsement of the petitioner bank, paid the
amount on the face of the check.
-April 19, 1966 -SMC notified FNCB of the material
alternation in the check about a month after
FNCB had paid Republic Bank. FNCB recredited
P9,240 to SMCs account.
-May 19, 1966 FNCB wrote Republic about the
alteration. But at that time, Delgado had already
withdrawn the said amount from his Republic
Bank account.
-FCNB demanded that Republic Bank refund the
amount of P9,240 on the basis of the latters
endorsement and guaranty. Republic refused,
saying that 1) there was delay in giving notice of
the alteration, 2) it was SMCs fault in drawing the
heck in such a way as to allow the alteration and
3) that FNCB, as drawee, was absolved of any
liability to SMC thus FNCB had no right to
recourse against Republic Bank.
-The trial court ordered Republic Bank to pay P9,240
to PNCB with interest. The CA affirmed the TC
ruling.
ISSUE
WON Republic Bank, as clearing bank, is protected
from liability by the 24-hour clearing house rule
(in CB Circular 9)
HELD: YES
-When an endorsement is forged, the collecting bank
or last endorsor bears the loss. However the
NEGO - Quevedo 46
Camille Umali
unqualified endorsement of the collecting bank
on the check should be read together with the 24-
hour regulation on clearing house operation.
-When the drawee bank fails to return a forged or
altered heck to the collecting bank within the 24-
hour clearing period, the collecting bank is
absolved from liability.
Jurisprudential rulings on the matter:
-HSBC vs. Peoples Bank: A check was drawn by
PLDT on HSBC payable to the same bank. It
was mailed to the payee but landed in the hands
of Changco who erased the payees name and
replaced it with his own name. He then
deposited the check in Peoples Bank with the
indorsement: For clearance, clearing office.
This was cleared by the drawee bank HSBC.
Changco withdrew the money and when the
alteration was discovered, HSBC sought to
recover the amount from Peoples Bank. HSBC
advised Peoples Bank of the alteration 27 days
after clearing. The Court ruled that the said
indorsement must be read with the 24-hour
regulation.
-Metrobank vs. FNCB (Aha! Gaya nga ng sabi ni
Sharon Cuneta, Di na natuto): A check for
P50 was drawn by Cunanan and Co. on its
account at FNCB and payable to Manila Polo
Club was changed to P50,000. It was deposited
by Sales in his account in Metrobank. The check
was cleared by FNCB which paid P50,000 to
Metrobank. The alteration was discovered 9
days later so FNCB sought to recover from
Metrobank. The Court upheld the validity of the
24-hour clearing house regulation. The check
was not returned to Metrobank in accordance
with the given period but was cleared by FNCB.
Failure of FNCB to call attention to the alteration
of the check negates whatever right it may have
had against Metrobank.
-Every bank that issues checks for the use of its
customers should know WON the drawers
signature is genuine. It should be able to detect
alterations, erasures and other intercalations on
the check. It should possess appropriate
detecting devices.
-Unless the alteration is attributable to the fault or
negligence of the drawer, the remedy of the
drawee bank that negligently clears a
forged/altered check for payment is against the
party responsible for the forgery/alteration.
Disposition Petition for review granted.

C.L.T. CORPORATION V PANAC
(District CA, California; 1944)
149 P. (2d) 901 (1944); WARD, J.
~lora~
FACTS
-Plaintiff (CLT-holder) brought this action to recover
from the defendants (Panacs-maker) the amount
of 2 promissory notes, negotiable in form,
executed in favor of Home Improvement
Company (payee) in payment of certain repairs
and renovations to be performed by the payee
upon two dwelling houses owned by the
defendants.
-The notes were indorsed by the payee to the plaintiff
which claims to be holder in due course.
-Defendants denied that the plaintiff was such a
holder and as a separate defense, pleaded fraud
on the part of the payee in the procurement of the
notes by its agent -William Hart. The defendants
were alleged to be illiterate.
-Hart was introduced to the defendants by a friend of
theirs, Krajer, for whom Home Improvement
Company had done repair work similar to that
proposed to be done by defendants.
-Hart prepared a document which purported to
embody the understanding arrived at on the work
to be performed and the cost. He asked
defendants to sign it. Both demurred, Mrs. Panac
stating that she did not read it and wished to see
an attorney. Hart assured her that it was not
necessary, that the contract has to be signed at
once to get the work started. In doing so, he read
the items of work entered in his note book,
stating that they were in agreement and urged
again the defendants to sign. They still objected
but their scruples were overcome by Harts
assurance that all the work shall be done to their
satisfaction and that it was necessary to start at
once. Martin thereupon affixed his signature to
the contract.
-Hart then presented to them another paper, divided
into 3 parts by perforated lines, one part being an
application for credit, the second a form of
promissory note and the third a declaration that
the work for which the credit was required had
been satisfactorily completed. The defendants
placed their signatures at the point indicated by
Hart upon his assurance that it was part of the
contract for the work to be done and without
having Hart read it to them. The second note was
executed under the same circumstances.
-There were present during the proceedings 2 other
persons beside Krajer but neither the defendants
requested any of them to read aloud the
document or to explain the contents thereof.
-The defendants testified that they understood from
Hart that the work was to be paid for in monthly
installments, but had not contemplated giving
notes.
-The work was never completed notwithstanding
vigorous efforts made by the plaintiff and the
NEGO - Quevedo 47
Camille Umali
defendants to induce Home Improvement
Company to do so, with the consequence that
when the first installment became due on the
notes the defendants refused to pay.
-The trial court found that CLT is a holder in due
course however, it also held that fraud was
perpetuated against the defendants hence,
plaintiff takes nothing by its action.
-Plaintiffs appealed from the judgment.
ISSUES
1. WON plaintiff is a holder in due course.
2. WON defendants are free from negligence.
3. WON the defendants can plead the defense of
fraud against the plaintiff.
HELD
1. YES. Defendants do not contend that the plaintiff is
not a holder in due course. No evidence was
introduced that C.L.T. had actual knowledge of a
defect in the instruments or any fact that would
justify a finding that the plaintiffs acceptance of
the instruments amounted to bad faith on their
part.
2. YES. The trial court determined that,
notwithstanding the possession of some
knowledge of the English language on the part of
the defendants, their neglect to call upon others
present to read to them the documents, and their
failure to insist on their request for time to seek
independent legal advice, they are free from
negligence. A reading of the record alone might
well disapprove this finding, but, bearing in mind
that the trial court had an opportunity to view the
witnesses, note their demeanor, the Court
refrained from stating as a matter of law that
there is insufficient evidence to uphold it.
3. NO. Brannans Negotiable Instrument: At common
law a real defense was held in most jurisdictions
to exist in those cases in which a person, without
negligence, has signed an instrument, which
was, in fact a negotiable instrument, but was
deceived as to the character of the instrument
and without knowledge of it. In such cases, there
is no contract because there was no consenting
mind, but the signer may be estopped by
negligence to deny knowledge of the character of
the instrument which he has signed. If he was not
negligent he is not liable.
-In Wisconsin, Minnesota and Illinois, the NIL or other
legislation expressly makes fraud in the factum a
real defense. The Uniform Act does not cover the
question in so many words. It is possible
however, that such conduct is fraud within Sec.
55 and hence causes merely a defective title, or
that it is one of the defenses under Sec. 57. It
might also be assimilated to want of delivery,

which was made an equitable defense by Sec.
16. Either possibility would change the common
law and protect the holder in due course.
-In further support of this position it should be noted
that the other real defenses are covered by the
act and broad interpretation of Sec. 55, especially
the last clause under such circumstances as
amount to fraud certainly includes all kinds of
fraud in factum. Since this is so it is hard to
believe that the framers overlooked this particular
defense. The equities are all in favor of such
interpretation, since the defrauded party really
caused the situation and should be the one to
suffer.
-Under the old common law view fraud in Sec. 55
would be limited to fraud in the inducement and
defenses in Sec, 57 restricted to defenses which
were equitable at common law, while fraud in the
factum would continue to be a real defense
analogous to forgery under Sec. 23. Such is the
result of a number of cases which have arisen
since the NIL, most of which do not cite the act,
but there is a strong line of well reasoned cases
contra.
-Freedom from negligence on the part of the makers
has never been regarded in California in following
the common law rule, or made by statute a
defense, real or personal, against a claim of a
holder of a negotiable instrument in due course. If
the legislature had intended such defense it
would undoubtedly have so provided in no
uncertain terms, as the courts of this state have
not, at any time, recognized such a defense.
-It follows that the defendants were not in position to
set up as a defense in this case any equities
existing between them and the Home
Improvement Company even if, as found by the
court, they were free from negligence in
executing notes.
Disposition Judgment Reversed.
PETERS (Dissenting)
-The type of fraud here involved has been referred to
as fraud in esse contractus, fraud in the factum,
fraud in the inception or fraud in execution, to
distinguish it from fraud in the inducement which
is a mere personal defense. At common law the
cases were practically unanimous that fraud in
the execution was a real defense.
-The overwhelming weight of authority is to the effect
that the adoption of the NIL in now way changed
NEGO - Quevedo 48
Camille Umali
the common law rule, and that both before and
after the adoption of that uniform statute, fraud in
the execution was and remained, a real defense.
-The applicable rules under the NIL is stated as:
Although there are some decisions to the
contrary, the weight of authority holds that if a
person intending to sign an instrument of an
entirely different character places his signature to
a negotiable instrument not being due to laches
or negligence on the part of the signor, the latter
is not liable on the instrument, although it has
passed into the hands of a bona fide holder for
value.
-Mr. Brannan quoted in the majority opinion approves
the minority rule.
-The many courts and legal writers have not approved
the rule that fraud in execution, where the maker
is not negligent, is a real defense, by blindly
following the common law rule. Cogent and
compelling reasons exist for this approval.
-It must be remembered that NIL is not an entirely
new statute, nor did it purport to repeal the entire
law of contracts. It purported to codify the law of
merchant and where there was a conflict to adopt
what was considered to be the better rule. Where
the NIL has no excess provision, or where its
meaning is ambiguous, cases decided under the
law merchant and fundamental rules of contract
should be looked to in arriving at a proper
interpretation.
-So far as the present problem is concerned, the NIL
has no express provision covering the subject.
There are provisions, however which tend to
show that the drafter of the act intended fraud in
the execution to be real defense.
-Sec. 57 of NIL, Sec. 3138 of the Civil Coe, provides
that the holder in dues course free from any
defect of title of prior parties, and free from
defenses available prior parties among
themselves. When a party, without negligence,
signs a document by reason of fraud of another
and honestly and reasonably believes it to be
something else other than a negotiable
instrument, the document, when executed is not
merely voidable it is void. Fraud of this type is
not a mere defense nor a mere defect of title
such as referred to in Sec. 57. It is a factor which
renders the instrument non-existent as a binding
obligation.
Disposition Judgment Affirmed

C.I.T. CORPORATION V PANAC
Supreme Court of California
25 Cal. (2d) 547, 154 P. (2d) 710, 160 ALR 1285 (1944)
~marge~
FACTS (as found by the District Court of Appeals)
SUBJECT: 2 promissory notes in payment of certain
repairs and renovations to be performed by
payee upon two dwelling houses owned by
makers
MAKERS: Sps. Panac, illiterate, unable to read or
write the English language
PAYEE: Home Improvement Company
INDORSEE: C.I.T. Corp, a holder for value in due
course
-Makers were defrauded by payee in the procurement
of the notes. William Hart, agent of the payee,
gained their trust and confidence and secured
their signatures to the notes by false
representations w/c induced them to believe that
they were signing a contract to repair the houses
and nothing else. They were ignorant of the fact
that they were signing notes, and were not
negligent in signing the same.
ISSUE
WON the defense put up by the makers is a real
defense, good even against indorsee as a holder
in due course
HELD: YES
NEGO - Quevedo 49
Camille Umali
-A negotiable instrument which is void (as when there
is in fact no contract or there is fraud in the
execution) is not enforceable by a holder in due
course in the absence of negligence on the part
of the maker.
-A person who cannot read is not always negligent in
not calling on a third person to read the
instrument to him. The question as to his
negligence is one for the jury (that is, the courts)
to decide.
Circumstances showing that makers were not
negligent:
-Sps. Panac were illiterate
-Hart employed high pressure method
-Only contract for repair was read, not the notes
-Hart insisted an immediate execution
-Hart brushed aside Mrs. Panacs suggestion that
legal advice be obtained
-Witnesses to the signing were all friends of Hart.
Even Krajer, whom makers personally knew
couldnt have objected to such fraud since he
was promised commission. In fact, it was his
apparent acquiescence in the transaction that
served to silent any apprehensions of the
makers.

COHN V CITY OF TAUNTON
303 Mass. 182, 21 N.E. (2d) 281 (1939)
~anton~
FACTS
-Action by Cohn et al., innocent purchasers for value
without notice, to prosecute to recover the face
amount of overdue coupons on certain bonds of
the defendant city payable to bearer which have
been stolen from the vault of the city treasurer.
-After the bearer bonds had been delivered to the
City Treasurer as agent in order to have them
registered, the Treasurer had completed the
issue of fully registered bonds of like amount, but
had not destroyed or cancelled the bearer
bonds nor placed any notation upon them and
had kept them in his vault.
-Cohn and company held them, but the City Treasurer
refused to pay on the ground that the amount
covered by the bonds had been paid already.
ISSUE
WON Cohn et al. were holders in due course, and
thus entitled to the amount
HELD: YES
Ratio An instrument that has once been issued,
returned, discharged, and stolen would seem to stand
no differently in the hands of a holder in due course
NEGO - Quevedo 50
Camille Umali
than an instrument that has been prepared, signed
and stolen before being issued.
Reasoning The validity of municipal obligations is not
affected, in the hands of innocent holders for value,
by facts which concern merely the manner of their
passing from their maker into currency, and which do
not concern the mode of, or the authority for their
creation.
-It would be unfortunate in many respects if bonds of
municipalities passing by delivery in the market
should be treated differently in this regard from
the negotiable paper of other corporations and
individuals.
-It is true that the incurring of liability by municipalities
is often strictly regulated by statue, and we need
not now go far as to say that such statutes could
never affect the position of an innocent holder.
-The case cited by the defendant was decided before
the negotiable instruments law and at a time
when the authorities were divided as to the
necessity of an authorized delivery of a
negotiable instrument.
Disposition Judgment for the plaintiffs in the sum of
$100 and interest from the date of the writ.

SMITH V DOTTERWEICH
200 NY 299, 93 NE 985, 33 LRA (NS) 892; 1911
~jonas~
FACTS
-Dotterweich (MAKER-defendant) executed and
delivered to Smith (PAYEE-plaintiff) a promissory
note for $3,740 payable in 6 months. When the
note became due, it was renewed by 4 notes
payable 6 months from that date. The renewal
notes were not paid at maturity, & Smith brought
action for payment.
-Smith introduced evidence to show that the original
note was given in payment of premiums on 2 life
insurance policies to the defendant by the John
Hancock Life Insurance Company through Smith,
as its general agent. Dotterweich denied that the
notes were given for value received and that
Smith was the lawful holder & owner thereof,
alleging an oral agreement under which neither
the notes nor the insurance policies were to
become valid & enforceable obligations unless
Smith secured for Dotterweich a certain loan of
money.
-The trial court granted Smiths motion to direct a
verdict, to which Dotterweich excepted and
moved to submit to the jury the question whether
there was a condition that the original note & the
insurance policies should be returned in case
Smith did not procure a loan of $70,000 for
Dotterweich within a year. The motion was
denied, and Dotterweich took an exception.
ISSUE
WON the defendants testimony creates a question of
fact for a jury
HELD: YES
Ratio If the agreement created a condition precedent
(suspensive condition), without the performance
of which the notes never became valid
obligations, then there is a question of fact. If the
agreement created a condition subsequent
(resolutory condition), the issue is one of law for
the decision of the trial judge. (basically i think
the issue is whether the oral agreement meant
that the notes were never valid, in which case
there was never any delivery, or that the notes
later became invalid because of the failure of the
NEGO - Quevedo 51
Camille Umali
condition, in which case there was delivery)
Reasoning The oral agreement between the parties
testified to by Dotterweich was that the note
would be held in Smiths safe until the loan was
procured, otherwise the note would be returned &
the insurance policy would be null & void. The
loan was never made, therefore there is a failure
of the condition which determines the existence
of any contract between the parties. In the case
of Jamestown Business College Assn v Allen,
upon which Smith relies to support his
contentions, the promissory note was rendered
effective by an unconditional delivery. The
agreement of the payee to release the maker and
cancel the note upon the happening of a future
contingency was a condition subsequent which
brought the case within the general rule that a
contract reduced to writing, and complete in its
terms, cannot be contradicted by oral testimony.
The oral testimony therein was in direct
contradiction of the written contract, as to the
existence or validity of which there was no
controversy, while in the case at bar the oral
testimony tends to show that the writing
purporting to be a contract is no contract at all.
On the effect of oral testimony on contracts which
are wholly or partly reduced to writing When
the oral testimony goes to the question whether
there is a written contract or not, it is always
competent; but when the effect of the oral
testimony is to establish the existence of the
written contract which it is designed to contradict
or change, then the spoken word must yield to
the written compact.
On the rule in Benton v Martin, 52 NY 570
Instruments not under seal may be delivered
upon conditions the observance of which is
essential to their validity. The annexing of such
conditions to the delivery is not an oral
contradiction of the written obligation as between
the parties to it or others having notice.
Disposition Judgment excepted from is reversed and
a new trial ordered.

PAVILIS V FARMERS UNION LIVESTOCK COMMISSION
68 S.D. 96, 298, N.W. 732.
~monch~
FACTS
-Plaintiff Pavilis filed the action to recover upon an
instrument alleged to be a check transferred to
plaintiff for value by one C. Hoard who was
named as payee therein. Defendant Farmers
Union Livestock Commission argues that: (a)
plaintiff was not HIDC, and (b) the instrument
signed in blank by defendant and having been
stolen from his possession prior to delivery had
no legal inception or existence as a check. Lower
court ruled in favor of plaintiff. Defendant
appealed.
-It was practice of defendants office manager, who
was authorized to sign checks, to sign a block of
instruments, printed to be used as check at the
beginning of the business day and deliver the
same to the bookkeeper whose regularly duty
was to complete the instruments as checks and
deliver the same to customers during the
business day. It was also the practice of such
office manager to procure the return of such
signed instruments not delivered at the close of
business day for the purpose of safekeeping and
for the purpose of checking or auditing the same.
-Around February 1939, one C. Hoard was employed
by defendant as a bookkeeper and clerk. Hoard
was expressly authorized by defendant in the
presence of such other bookkeeper to complete
and deliver checks only during business hours
and only for amounts due them as shown by
such account of sales. Hoard was not entrusted
with a key to the defendants office although he
did have access to a key kept in a desk in the
office in order to unlock the padlock on the inside
of the gate across the counter between
defendants office and the hall. On or about Feb
24, 1939, after the close of the defendants office,
Hoard gained access thereto by unlocking the
gate across the counter and climbed over the
counter into defendants office and then opened
the safe in defendants office by using the
combination which he knew, and w/o defendants
knowledge, took certain instruments printed for
use as checks, blank as to amount, date and
payee, which had been signed by defendants
office manager authorized to sign checks, and, in
one of which instruments Hoard w/o defendants
knowledge or express consent, inserted the date,
amount and payee. Then Hoard placed his name
upon the back of the instrument and delivered the
same to plaintiff for value of $102.85.
ISSUE
WON the lost check was completed and therefore
giving plaintiff Pavilis title to the instrument
NEGO - Quevedo 52
Camille Umali
HELD: NO
-The check in controversy was an incomplete
instrument when stolen and cannot be enforced
in the absence of conduct on the part of the
drawer creating estoppel.
-It is urged that defendant is chargeable with
negligence and is estopped to deny liability. The
cases cited are those in which the party sought to
be charged upon a negotiable instrument has
entrusted an instrument signed in blank to an
agent or some other person who has wrongfully
completed and negotiated the instrument; an
agency or trust was created by means of which
the fraud was committed and the fact that there
was no authority for completing the instrument
was otherwise wrongfully dealt with was no
defense.
-In Linick v AJ Nutting Co: blank check signed by
plaintiff was stolen by Rycoff and Silbermann,
who filled the amount and a fictitious name as
payee and presented it to drawee bank. They
endorsed the name of the payee and transferred
the check to defendant for value who collected
the amount of the check from the bank. Court
held that the check was an incomplete instrument
and that negligent custody of the check was not
borne out by the facts.
-Court concludes: If as a result of negligence such
instrument comes into the hands of a holder in
due course, the latter may recover, yet we cannot
say under the facts and circumstances of the
instant case that defendant was negligent. The
loss did not result from completion and
negotiation of the check by one entrusted with its
possession, and we are not concerned with a
breach of duty as between a depositor and
drawee. It does not appear that defendant
company had reason to mistrust its employee
and to anticipate the wrongful taking by him of a
check signed in blank, the subsequent
completion and negotiation.
-The drawer owes the duty to use due care in the
execution of checks, but it does not follow as a
legal conclusion that signers of checks in blank
assume the risk of liability in all cases where
such instruments are wrongfully taken, completed
and negotiated. To hold that a person is negligent
in having in his possession a check signed in
blank would require something more than the
exercise of ordinary care
Disposition Judgment of lower court is reversed.
 NEGO - Quevedo 53
Camille Umali

WEINER V PENNSYLVANIA CO. FOR INSURANCE ON LIVES AND GRANTING ANNUITIES

160 Pa. Super. 320, 51 A. 2d 385 (1947)
~ice~

FACTS No. The depositor is.

SUBJECT: Bil of Exchange-Check -Weiner signed the check in blank thus putting it in the
MAKERS: Weiner power of an unauthorized person to fill it in and
PAYEE: Blank present it for payment. The depositors act made
Weiner signed her name to a blank check. The check the loss possible and caused it, and enabled the
was stolen. The thief placed the amount $250, thief to commit the fraud. Weiners act was a bar
the date, and a fictitious name as the payee. The and an estoppel. To hold otherwise would require
bank paid the check to the fictitious payee who the bank to communicate with the drawer as
properly indorsed it. each check was presented, in order to find out if
Weiner sued the bank to recover the amount taken the delivery was intended. This is too much to be
saying that the bank was negligent as it failed to expected; and to place the burden of loss or its
identify the person paid. chance to the depository if it does not interview
the maker, is neither fair nor compatible with
ISSUE public interest. Such would affect the very nature
WON the bank is liable of checks which is convenience.
Disposition: Affirmed.
HELD

LINICK V A.J. NUTTING & CO.
New York SC; 125 N.Y.S. 93, 140 App. Div. 265 (1910)
~rean~
FACTS
Plaintiff Linick signed his name to a blank check.
Thereafter Rycoff and Silberman stole the check,
filled in the name of FA Mann as payee and
$147.87 as the amount thereof, and presented it
to the State Bank, where plaintiff kept his
account, and procured it to be certified.
Thereafter they indorsed said check with the
name of FA Mann and passed it to defendant A.J
Nutting and Co. for value, who collected the
amount from said bank. Plaintiff, having taken up
said check from the bank, now sues defendant as
for money had and received for the amount of the
check.
ISSUE
WON defendant obtained any title to the check which
as against the plaintiff, was a valid obligation for
$147.87.
HELD: NO
-In the case of a commercial paper, when by
voluntary act a party instructs another with such
paper with a blank thereon designed to be filled
up with a stipulated amount, such party is liable
to a bona fide holder, of the instrument. As to the
basis of (plaintiffs) liability, some say that it rests
upon an implied authority conferred by the maker
upon the person to whom it was delivered to fill in
the blanks, and others upon estoppel by reason
of negligence.
-Not upon implied authority: for such doctrine grows
out of principal-agent relationship, and theres no
such relation between a thief and his victims. The
rule that the bona fide holder of an incomplete
instrument, negotiable but for some lack capable
of being supplied, has implied authority to supply
the omission, and to hold the maker thereon, only
applies when the latter has by his own act, or the
act of another, authorized, confided in or invested
with apparent authority by him, put the instrument
in circulation as a negotiable paper.
NEGO - Quevedo 54
Camille Umali
-Not upon negligence: since the paper was stolen and
the persons guilty of the crime have been
convicted. Plaintiff then cannot be charged with
negligence giving rise to an estoppel, unless a
man is guilty of negligence in writing his name
upon a piece of paper which by some possibility
may afterwards be stolen from him, which paper
comes into the hands of a third person who is an
entire stranger to the transaction, with words
written over the signature which are sufficient in
form to make it a check or note. Actionable
negligence involves, first, the existence of a duty;
second, the omission to exercise ordinary and
reasonable care in connection therewith; and
third, injury resulting in consequence thereof.
-Sec. 34 (NIL 15) states: Where an incomplete
instrument has not been delivered, it will not, if
completed and negotiated, without authority, be a
valid contract in the hands of any holder, as
against any person whose signature was placed
thereon before delivery.
-The next section in the same act to the effect that
where the instrument is in the hands of a holder
in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to
him is conclusively presumed must be read with
Sec 34 (NIL 15), and this provision does not
apply in the case of an incomplete instrument
completed and negotiated w/o authority.
-Court concludes: The delivery of a PN by a maker is
necessary to a valid inception of a contract. The
possession of such a note by the payee or
indorsee is prima facie evidence of delivery. But if
it appears that the note has never been actually
delivered, and that without any confidence, or
negligence, or fault of the maker, but by force
and fraud, it was put in circulation, there can be
no recovery upon it, even when in the hands of
an innocent holder. So, defendant did not obtain
any title to the check, and cannot recover upon it.
Disposition Judgment appealed from must be
reversed, and a new trial ordered.
 NEGO - Quevedo 55
Camille Umali

SIMPSON V NATL BANK OF ROSEBURG

94 Ore. 147, 185 Pac. 913 (1919)
~yella~

FACTS condition to another person for value then that

SUBJECT: Promisory note
MAKER: Mrs. M. Josephson
PAYEE: (intended to be the banki)
INDORSEE: National Bank of Roseburg
POSSESSOR: Grace Simpson
-When the note was executed the name of the payee
was left blank, and was still in that condition
when the plaintiff received it.
-The plaintiff tells about writing the name of the in
blank and avers that the plaintiff is entitled to the
indorsement of the defendant herein upon said
note and was at all times so entitled to the same
ISSUE
WON plaintiff has a right against the defendant and
the maker of the note
HELD: (case was remanded, court merely
discussed rules of the law of merchant if
instrument is incomplete)
-When the maker of the note left a blank for the name
of a payee and delivered the instrument in that
person to whom the note was delivered or any
subsequent holder could insert his own name, or
that of a transferee, as payee.
-The plaintiff could not have sued and recovered upon
an incomplete instrument.
-Grace Simpson could, in the absence of knowledge
of special instructions given by the maker, have
filled the blank by writing her own name as
payee. However, in this case, evidence show
that the makers intention was that the name of
the bank was to be filled in the blank as payee.
-A person upon whom authority is conferred to
complete the instrument, is not referred to as the
holder but as the one in possession. He is only
given prima facie authority to fill a blank, and that
the person filling the blank must do so strictly in
accordance with the authority given.
Disposition Cause is remanded to allow plaintiff
opportunity to amend her complaint and thus
enter a court of equity.
 NEGO - Quevedo 56
Camille Umali

DOUGHERTY V SALT
227 N.Y. 200, 125 N.E. 94 (1919)
~javi~

FACTS: you.Sabi ko na nga ba Pinoy si Susan Teves

-Action by Charles Doughtery, an infant, instituted by
Susan Teves, his guardian against Emma Salt an
executrix of the last will and testament of Helena
Doughtery (aunt of Charles)
-plaintiff received from his aunt a promissory note for
$3,000 payable at her death or before. Use was
made of a pronted form which contains the words
value received
-Salt explained how the note came to be: boys aunt
visited one day and commented how she loved
the boy so much to which Salt commented that
her love was all talk. Aunt replied by saying that
she would take care of the boy right at that
instant. She asked the guardian to make a note
for her which she signed. In the note were the
words You have always done for me, and I have
signed this note for you. Now, do not lose it.
Some day it will be valuable. (You have always
done for meand I have signed this note for
eh)
ISSUE: WON there was any consideration for the
promised payment
HELD: no
-TC geld that there was no consideration. Appelate
Division however reversed.
-SC reverses appellate courts decision
-SC geld that the note was the VOLUNTARY AND
UNINFORCEABLE promise of an executory gift.
(no explanation why)
-the eight year old child was not a debtor, nor dealt
with as one. The aunt was conferring a bounty.
The promise was neither offered nor accepted
with any other purpose
-the plaintiff, through his own witness, the guardian
who explained how the note came to be, has
explained the genesis of the promise. There is no
showing that consideration was given
 NEGO - Quevedo 57
Camille Umali

WILLIAM BARCO & SON V FORBES (1927)

[place citation here]
~brian b~

FACTS HELD: YES.

-Plaintiffs brought suit upon a note for $227.25
against defendant who issued it for the purchase
of fertilizer from plaintiff.
-The note, dated Jan 10, 1923, was given in renewal
of a former note dated July 1, 1922.
-Defendant contended that the fertilizer was bought
for use in producing a sweet potato crop in 1922,
and that the fertilizer was worthless and had no
effect whatever upon the crop.
-This fact notwithstanding, TC ruled in favor of
plaintiffs.
ISSUE
WON defendant is liable
Ratio One who gives a note in renewal of another
note, with knowledge at the time of partial failure
of the consideration for the original note, or of
false representations by the payee, waives such
defense and cannot set it up to defeat or to
reduce the discovery on the renewal note. (Bank
v Howard)
Reasoning The time for harvest was in July or
August 1922 and the potatoes were dug at that
time. It is obvious, therefore, that the defendant
knew then that the fertilizer was worthless and
that there was a total failure of consideration.
Nevertheless, he executed the renewal note.
Disposition Judgment affirmed.
 NEGO - Quevedo 58
Camille Umali

CHAPTER V: LIABILITY OF PARTIES

1st NATL BANK OF CENTRAL CITY V UTTERBACK

177 Ky. 76, 197 S.W. 534, L.R.A. 1918B, 838 (1917)
~mini~

FACTS of an instrument, by making it, admits the payees

SUBJECT: negotiable promissory note
PAYEE: Davis Coal Company
-(the only fact I could find) The payee in the note was
(probably) required to comply w/ one of 2 certain
sections of Kentucky law before it was authorized
to do business in the state.
ISSUE
WON the failure of a payee in a negotiable
promissory note to comply with sections 199b
and 571, Kentucky Statutes (sorry Campos did
not reproduce the statutes themselves but I think
the content doesnt matter) without which it could
not do business in the state, before the execution
of the note, renders it uncollectible in the hands
of an owner in due course.
HELD: NO
-The Negotiable Instruments act (I think. In Kentucky
statutes.) says in plain language that the maker
capacity to indorse it.
-The act does not say, however, that the maker
admits the payees capacity to make the contract
for which the note was executed, and hence he
may have the right to urge such defense against
the original payee. BUT again, reiterate the point
that the act DOES take from the maker the right
to deny the capacity of the payee to indorse and
negotiate the note free from defenses available
against the payee, even though, as between the
original parties, the note was void and
unenforceable for any reason.
-It has been held in both Colorado and North Dakota
that a note to a foreign corporation that he has
not complied with the local law, without which it
would not do business in the state, is valid
against the maker in the hands of a holder in due
course.
Disposition The judgment overruling the demurrer to
the amended answer is reversed for proceedings
consistent herewith.

MORAN V CA, CityTrust Banking Corp.
230 SCRA 799; GR 105836; Regalado; Mar 7, 1994
~ajang~
FACTS
-Spouses George and Librada Moran are the owners of
the Wack-Wack Petron. They regularly purchased
bulk fuel and other related products from Petrophil
Corporation on a cash on delivery (COD) basis.
Orders were made by telephone and payments were
effected by personal checks upon delivery.
-The Morans maintained 3 joint accounts (1 current and 2
savings accounts). As a special privilege to the
Morans, as valued clients, the bank allowed them to
maintain a zero balance in their current account.
Transfers from one of the savings account to the
current account could only be made with prior
authorization, while transfers from the other savings
account can be made be the bank automatically
through a Pre-Authorized Transfer agreement or
PAT.
-On 12 December 1983, the Morans, drew a check for
P50,576.00 payable to Petrophil Corporation. The
next day, the Moran issued another check in the
amount of P56,090.00. The totalling to P106,666.00.
Petrophil deposited the two checks to its account
with the Pandacan branch of PNB, the collecting
bank. In turn, PNB presented them for clearing with
the Philippine Clearing House Corporation in the
afternoon of the same day. The records show that on
14 Dec 1983, Morans Current Account had a zero
balance, while Savings Account covered by the PAT
had an available balance of P26,104.30 and the
other Savings Account had P43,268.39.
-The following day, at around 10am, George Moran went
to the bank, as was his regular practice, to
personally oversee their daily transactions with the
bank. He deposited money to the 2 savings account.
He then withdrew P40k from Savings Account A and
deposited the amount to the current account. -The bank was also under no obligation to give notice
P66,666 was also transferred from the other Savings
Account to the current account through the PAT
agreement.
-Librada (wife) told George that Petrophil refused to
deliver their orders on a credit basis because the two
checks were dishonored due to "insufficiency of
funds. Non-delivery of gasoline forced Morans to
temporarily stop business operations. In addition,
Petrophil cancelled their credit accommodation.
Furious and upset, George Moran demanded an -A drawer must remember his responsibilities every time
explanation from the bank. He was told that Amy
Belen Ragodo, the customer service officer, had
committed a "grave error". The Morans filed a
complaint for damages.
ISSUE: WON a bank is liable for its refusal to pay a
check on account of insufficient funds but wherein a
deposit may be made later in the day.
HELD: NO.
-The relationship between the bank and the depositor is
that of a debtor and creditor. By virtue of the contract
NEGO - Quevedo 59
Camille Umali
of deposit between the banker and its depositor, the
banker agrees to pay checks drawn by the depositor
provided that said depositor has money in the hands
of the bank. Hence, where the bank possesses
funds of a depositor, it is bound to honor his checks
to the extent of the amount of his deposits. The
failure of a bank to pay the check of a merchant or a
trader, when the deposit is sufficient, entitles the
drawer to substantial damages without any proof of
actual damages. Conversely, a bank is not liable for
its refusal to pay a check on account of insufficient
funds, notwithstanding the fact that a deposit may be
made later in the day. Before a bank depositor may
maintain a suit to recover a specific amount from his
bank, he must first show that he had on deposit
sufficient funds to meet his demand.
-The available balance on 14 December 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
15 December 1983 was the actual date when the
checks were processed. When the Morans' checks
were dishonored due to insufficiency of funds, the
available balance of Savings Account which was the
subject of the PAT agreement, was not enough to
cover either of the two checks. On 14 December
1983, when PNB, Pandacan branch presented the
checks for collection, the available balance for
Savings Account 1037001372 was only P26,104.30
while Current Account 37-0006-7 had no available
balance. It was only on 15 December 1983 at around
10:00 a.m. that the necessary funds were deposited,
which unfortunately was too late to prevent the
dishonor of the checks.
before dishonoring checks drawn upon insufficient
funds. If ever the spouses Moran on previous
occasions were given notices every time a check
was presented for clearing and payment and there
were no adequate funds in their accounts, these
were, at most, mere accommodations on the part of
CityTrust. Legally, the bank had all the right to
dishonor the checks because there were no
sufficient funds to speak of in the first place.
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 the necessity to fund certain
checks he previously issued.A check, as
distinguished from an ordinary bill of exchange, is
supposed to be drawn against a previous deposit of
funds for it is ordinarily intended for immediate
payment. In the present case, between the time of
issuance of the checks on Dec 12 and 13 and
presentment on Dec 14, Morans had, at the very
least, 24 hours to replenish their balance in the bank.

ARANETA V BANK OF AMERICA
No. L-25414 July 30, 1971; 40 SCRA 144
~ricky~
FACTS
DRAWER: Leopoldo Araneta.
DRAWEE: San Francisco main office of the
Bank of America
SUBJECT 1: Check for $500 payable to cash.
Dishonored and stamped Account Closed
despite sufficiency of drawers deposit balance.
Upon inquiry, Bank acknowledged error and sent
a letter of apology to payee Harry Gregory of
Hongkong and requesting that no adverse
reflection be made on drawer. Matter considered
closed. However, similar events occurred later.
SUBJECT 2: Check for $500 payable to cash drawn
against the same bank. Stamped Account
Closed and returned to clearing bank despite
sufficiency of drawers deposit balance.
SUBSEQUENT INDORSEMENT: To Rufina Saldaa
who deposited it to her account with First
National City Bank of New York which in turn
cleared it through the Federal Reserve Bank. It
was actually paid by the drawee to First National
City Bank but later claimed it was inadvertently
made and requested the amount be credited
back. First National in turn wrote Saldaa but
before her reply was received, drawee recalled
the check from First National and honored it.
(Ano ba talaga, kuya?! )
SUBJECT 3: Check for $150 payable to cash drawn
against the same bank. Stamped Account
Closed and returned to clearing bank (Wells
Fargo Bank) despite sufficiency of drawers
deposit balance.
-Because of these incidents, Araneta filed suit for the
recovery of the ff: (1) Actual damages P30,000;
(2) Moral damages P20,000; (3) Temperate
damages P50,000; (4) Exemplary damages
P10,000; and (5) Attorneys fees P10,000. TC
awarded all items. CA eliminated actual and
temperate (for failure to prove an alleged
purchase of jewels for profit) and reduced moral
damages to P8,000, exemplary to P1,000 and
attorneys fees to P1,000.
ISSUES
1. WON the CA erred in eliminating temperate
damages.
2. WON the CA erred in not granting moral damages
for mental anguish, besmirched reputation,
wounded feelings, social humiliation, etc.,
separate and distinct from the damages
recoverable for injury to business reputation.
HELD
1. YES.
NEGO - Quevedo 60
Camille Umali
Ratio The financial credit of a businessman is a
prized and valuable asset, it being a significant
part of the foundation of his business. Any
adverse reflection thereon constitutes some
material loss to him.
Reasoning The Bank cites Art 2224 which provides
that temperate or moderate damages, which are
more than nominal but less that compensatory
damages may be recovered when the court finds
that some pecuniary loss has been suffered but
its amount cannot, from the nature of the case,
be proved with certainty, and contends that
Araneta failed to show such loss in this case
which the CA upheld. The question is WON there
is reason to conclude that Araneta did sustain
some pecuniary loss although no sufficient proof
of the amount has been adduced.
-From the nature of some cases, (citing the Code
Commission) definite proof of pecuniary loss
cannot be offered although the court is convinced
that there has been such loss. For instance,
injury to ones commercial credit or to the
goodwill of a business firm is often hard to show
with certainty in terms of money. The judge
should be allowed to calculate moderate
damages in such cases, rather than the plaintiff
should suffer, without redress from the
defendants wrongful act.
-Araneta is a merchant of long standing and good
reputation in the Philippines. His claim for
temperate damages is legally justified.
Considering, however, the small size of Aranetas
account with the Bank, the amounts of the
checks involved & the fact that the Bank tried to
rectify the error, although belatedly, an award of
P5T by way of temperate damages is sufficient.
2. NO.
Reasoning Araneta contends that moral damages
should have been granted for the injury to his
business standing or commercial credit,
separately from his wounded feelings and mental
anguish. It is true that under Art 2217,
besmirched reputation is a ground upon which
moral damages may be claimed but the CA did
take this element into consideration in adjudging
the sum of P8T in his favor. The CA considered
his reputation as an established and well known
international trader as well as his wounded
feelings and the mental anguish he suffered
which caused his blood pressure to rise beyond
unusual limits necessitating medical attendance
for an extended period.
Disposition Judgment of the CA MODIFIED by
awarding temperate damages of P5,000 and
increasing attorneys fees to P4,000.
 NEGO - Quevedo 61
Camille Umali

WOODY V NATIONAL BANK OF ROCKY MOUNT

194 N.C. 549, 140 S.E. 150 (1927)
~joey~

FACTS and, by virtue of the statute, the costs of the

SUBJECT: check for $6
DRAWER: Woody
DRAWEE: Bank of Rocky Mount
PAYEE: E.L. Hollingworth
INDORSEE: Kingston Garage
-The check was dishonored and marked No Account
by drawee bank although, at that time, drawer
had on deposit $50. Drawer was arrested and
tried on the charge of having given a worthless
check. He was acquitted.
-This action for compensatory and punitive damages
alleges that drawees act was willful, negligent,
wanton and malicious. Demurrer sustained in TC.
ISSUE
WON drawer may recover compensatory and punitive
damages from drawee
HELD: YES
-Upon the refusal or failure of the bank to pay the
check of its depositor, the bank is liable for a
breach of its contract. The depositor may recover
of the bank the amount of his check, with interest
and cost; the action being on contract, the
recovery is limited to the amount of the check,
with interest from date of demand and refusal,
action.
-Notwithstanding that the relation of the bank to its
depositor is that of debtor and creditor, a bank
may be held liable in tort to its depositor whose
check it has wrongfully refused or failed to pay.
-A depositor, whose check has been wrongfully
dishonored by the refusal or failure of the bank
on which it was drawn to pay the same, may
maintain an action against the bank, not only in
contract but also in tort, to recover the damages
which he has sustained, and that the jury may,
when the plaintiff is a merchant or trader, assess
not only nominal but also substantial damages;
when the plaintiff is not a merchant or trader, he
may recover such sum as special damages as
the jury shall find, upon the facts, will
compensate him for the injury resulting from the
wrong done him by the defendant.
-Even if such actual loss or injury is not shown, yet
more than nominal damages may be given. It can
hardly be possible that a customers check can
be wrongfully refused payment without some
impeachment of his credit, which must in fact be
an actual injury, though he cannot from the
nature of the case furnish independent, distinct
proof thereon.
Disposition Judgment reversed.

SINGSON V BANK OF THE PHIL. ISLANDS

23 SCRA 1117; Concepcion; June 27, 1968
~chriscaps~

FACTS drawee. Believing that Singson had no more

-Singson was one of defendants in civil case where
judgment was rendered against him and co-
defendants Lobregat and Villa-Abrille, to pay.
Singson and Lobregat appealed, but not Villla-
Abrille. Writ of garnishment was served upon BPI
in w/c Singson had account, insofar as Villa-
Abrilles credit against the bank were concerned.
-Clerk of bank, upon reading name of plaintiff and w/o
informing himself that garnishment was merely
for deposits of Villa-Abrillle and Bona, prepared
letter for Bank Presidents signature, informing
Singson of the garnishment of his deposits.
-2 checks issued by Singson in favor of Lega Corp,
drawn against said bank, were deposited by
control over his deposits, bank dishonored the
checks.
-Singson commenced present action against bank
and its president for damages because of illegal
freezing of account. CFI dismissed complaint.
ISSUE
WON damages may be awarded
HELD: YES
-Existence of a contract between parties doesnt bar
commission of a tort by one against the other and
the consequent recovery of damages therefore.

SPEROFF V FIRST-CENTRAL TRUST CO
140 Ohio st. 415, 79 N.E. 2s 119 (1948)
~del~
FACTS
-Vassil Speroff had drawn a check on First-Central
Trust Co. (FCTC).
-He eventually notified FCTC that said check be not
paid.
-Now, he sues FCTC to recover the amount of said
check.
-FCTC admitted to the drawing of the check and to
having received the notice not to pay. However, it
interposed the defense that Speroff signed a
document stating that Speroff agreed to
indemnify FCTC against any loss resulting from
the nonpayment of said check and that it is
expressly understood that it will not be held
responsible if it paid the check through
inadvertency or oversight.
-TC rendered a judgment for FCTC. CA reversed
saying that said statement of release was void as
it was contrary to public policy and void for want
of consideration. Hence, this appeal.
ISSUE
WON the statement of release signed by Speroff
constitutes a valid defense
HELD: NO.
The Court upheld the CAs two grounds for avoiding
the statement of release.
On want of consideration
-Under the reciprocal rights and obligations inherent
in the relationship existing between a bank and
NEGO - Quevedo 62
Camille Umali
its depositors, it was the duty of FCTC NOT to
pay after it had received the order of Speroff.
-Hence, when Speroff was asked to sign a statement
or release to the effect that the bank wouldnt be
held responsible if it would pay the check, this
was a new element in the relationship. What
consideration or benefit was received by Speroff
as promisor and what detriment was suffered by
FCTC as promise as a result of this statement?
NONE so clearly there was no compliance with
either of the fundamental requirements as to
consideration.
On contrary to public policy
-It is elementary that a bank is required by law to act
in good faith and exercise reasonable care in its
relationship with its depositors.
-In this case, the obtaining from Speroff of a purported
release from liability for inadvertency or oversight
as a condition of the order to stop payment of the
check was contrary to public policy and did not
relieve
FCTC from its duty to act in good faith and
exercise reasonable care.
-The Court distinguished that FCTCs defense of
purported release was a void and invalid
defense. However, the FCTCs defense of
exercising good faith and reasonable care (which
it interposed in its amended answer) is a valid
defense so the Court remanded the case back to
the Court of Common Pleas for trial on that issue.
Disposition Judgment was modified and cause
remanded.

CHASE NATL BANK OF CITY OF NY V BATTAT
Ny Court of Appeals; 297 N.Y. 185, 78 N.E. 2d, 465 (1948)
~jaja~
FACTS
SUBJECT: a check for $25,000 as payment for the
purchase of sugar
DRAWER: Arbeedee
PAYEE: Caracanda Bros. Co & Ltd.
DRAWEE: Chase National Bank of City of New York
Arbeedee and defendant Caracanda entered into an
agreement for the purchase of sugar which
provided that Arbeedee and should deliver a
check for $25,000 to Caracanda to bind the
transaction and that an amount would be
returned upon receipt by Caracanda of a letter of
credit to obtained by Arbeedee. Arbeedee drew
such a check on its account in the plaintiff bank
and delivered it to Caracanda. Thereafter
Arbeedee requested plaintiff to stop payment on
the check. Caracanda presented the check for
certification and it was certified by plaintiff
through mistake. The following day, Caracanda
presented it for payment and plaintiff paid it.
When advised of the payment of the check
Arbeedee insisted that plaintiff make no debit
against it account asserting that Caracanda has
no legal right to the money. Plaintiff thereupon
demanded payment of the $25,000 from
Caracanda. That was refused. The complaint
alleges due demand upon both defendants and
LAWLESS V TEMPLE
254 Mass 395, 150 NE 176 (1926)
~iNa~
FACTS
SUBJECT: bill
PAYEE: Hazel Lawless
DRAWER: Norris J. Temple
DRAWEE: Maurice E. Temple
-On the instrument appears ME Temple's signature
-ME Temple contends that the mere signature of the
name of the drawee on the bill cannot fulfill the
requirements that the signification of the assent
of the drawee must be in writing and must be
signed.
ISSUE
WON the signature of the drawee is sufficient
acceptance
.
NEGO - Quevedo 63
Camille Umali
nonpayment and prays for judgment in the sum
of $25,000 against Arbeedee and/or
Caracanda.
ISSUE
WON the complaint fails to state a cause of action
against Arbeedee
HELD: YES
-The complaint failed to allege ratification by
Arbeedee after learning of the payment by
plaintiff to Caracanda and there are no alternative
allegations of fact upon which to rest such a
cause of action. Our courts have never permitted
a bank in a commercial transaction to such as
this, after breaching its depositor's instructions to
involve him against his will in litigation with a third
party in order that the bank may recoup a
potential loss resulting from its own error. The
doctrine of subrogation or equitable assignment
is not properly applicable under such
circumstances. A bank may protect itself by
contract with its depositor so as to limit liability on
a stop payment order. When that has not been
done, the common law liability is absolute in the
absence of ratification. Judgment affirmed.
HELD: YES
-Acceptance must be in writing because sound policy
requires that some substantial and tangible
evidence of the contract is more reliable in nature
than the statement or recollection of witnesses.
The common practice before the NIL was to write
the word "accepted" + the signature on the face
of the bill.
-But based on case law, the signature is both a writing
and signing. The name alone is constantly holden
to satisfy the requirement.
-A drawee may be charged as acceptor although he
writes merely his name upon the bill and that
anyone taking the bill has the right to fill up a
blank acceptance on the same principle that a
holder may fill up a blank indorsement

KILGORE NATL BANK V MOORE BROS. LUMBER
102 SW 2d 200 (1937)
~chrislao~
FACTS
-Waddell transacted with Moore Brothers, a firm
engaged in the lumber business. As payment for
the lumber he purchased, Waddell drew 2 checks
wroth $350 drawn against Kilgore National Bank.
-2 checks were deposited by Moore Brothers in Grand
Saline Bank for collection. A few days later,
Grand Saline notified G.J. Moore that the checks
had been returned by Kilgore Bank unpaid.
-Because of this, G.J. Moore brought Waddell to
Kilgore Bank where Waddell, Moore and the
cashier of Kilgore Bank had an ORAL
agreement. Waddell instructed Kilgore bank to
pay Moore. The cashier promised Moore the
payment of said checks once presented again.
On the ledger of the bank in connection with
Waddell's account, the cashier made the
unsigned notation: "Hold for Moore Brothers
$350.00"
-G.J. Moore ordered Grand Saline to forward the
checks to Kilgore again. One of the checks was
paid. The other, however, was not. This
prompted Moore to file suit against Kilgore Bank
to recover amount of the last mentioned unpaid
check.
-TC and Civil Appeals: in favor of Moore Brothers.
WISNER V FIRST NATIONAL BANK OF GALLITZIN
220 Pa. 21, 68 Atl. 955 (1908)
~apple~
FACTS
SUBJECT: 6 checks
DRAWER: Samuel R. Bullock
DRAWEE: First National Bank of Gallitzin
PAYEE: Charles W. Gallaer, Jr. or order
-Subject checks were deposited in various banks
and then, forwarded by said banks to drawee
bank for payment
-5 of the checks were not returned by the drawee
bank to the forwarding banks for more than 2
days
-Holder of the checks sued the drawee bank for
payment on the theory that its failure to return the
checks within 24 hrs after receipt thereof
constituted acceptance
-TC ruled in favor of drawee bank, saying that
mere retention of the checks unaccompanied by
its refusal to return them, was not acceptance
ISSUE
WON failure to return the checks to the holder or
the collecting bank within 24 hrs amounts to
acceptance
HELD: YES.
-The drawee to whom a bill is delivered for
NEGO - Quevedo 64
Camille Umali
ISSUE
WON Kilgore is liable for the other check
HELD: NO. Section 132 governs.
Campos enumerates the ff requisites:
1)it must be in writing
2)it must be signed by the drawee, and
3) it must not change the implied promise of acceptor
to pay only in money.
Acceptance is usually made by writing "accepted" and
signing immediately below. However, the
drawee's signature alone is NOT sufficient
-The plain purpose of 132 is to prevent any liability to
the holder of a check from arising from the bare
oral promise of the drawee bank to pay the
check. In the present case, the liability of Kilgore
Bank to Moore Brothers depends entirely on the
BARE ORAL PROMISE of the drawee bank to
pay. As we have said, this should have been in
writing (and of course, complying as well with the
other two requities).
-The notation in the bank's ledger "Hold for Moore
Brother, $350.00" adds no force to said promise.
This statement (as opposed to the oral promise
to pay) does NOT EVEN make any contract, oral
or written, to pay.
acceptance is deemed to have accepted it under
Section 137 where: 1. he destroys it; 2. where he
refuses within 24 hrs after delivery to return the
bill accepted or non-accepted to the holder; and
3. where he refuses within such other period as
the holder may allow to return the bill accepted or
non-accepted to the holder.
WON a demand from the holder for the return of
the bill, and a refusal on the part of the drawee,
are conditions precedent to an acceptance
-No prior demand from holder is required
because to require so is not to the convenience
or interest of the holder
-The manifest purpose in requiring prompt return of
the bill is in the interest of and for the protection
of the holder
-If this section had in view the protection of the holder,
then it was evidently the intention of the
legislature that the non-return of the bill within
the specified time, regardless of the cause, will
make the drawee an acceptor
-The drawee bank, having failed to return the 5
checks to the collecting bank within 24 hrs after
delivery, is deemed to have accepted the checks,
and is therefore, liable for their amount
*After the decision, Pennsylvania amended

Section 137, to destroy the effect of the decision.
The following proviso was added: "Provided, that
the mere retention of such bill by the drawee,
URWILLER V PLATTE VALLEY STATE BANK
SC Nebraska; 164 Neb. 630, 83 N.W.2d 88 (1957)
~rach~
FACTS
SUBJECT: Holder's action against drawee bank,
which had returned check on account of
insufficiency of funds on deposit in drawer's
account. Lower court dismissed such action;
holder appealed.
DRAWER: Ira McCord who had an account in
defendant bank
DRAWEE: Defendant Platte Vlley State Bank
PAYEE: Plaintiff Norton Urwiller
-In payment of his purchase of hogs, McCord issued
to Urwiller his check for the sum of $2,491.11. The
next day, Urwillers wife deposited this to his account
in the Ravenna Bank. The bank then forwarded the
check for collection in the usual course of business
through regular channels: Ravenna Bank -> Bank in
Lincoln -> Omaha branch of the Federal Reserve
Bank -> Platte Valley State Bank (PVSB).
-The check was received in a cash letter during
business hours on Saturday, Dec 12, 1953. The
check was proofed on the day it was received and
posted for action on the following business day, which
was Monday. On Mon it was decided not to pay the
check, but mark it for 'return,' because the drawer
thereof did not have sufficient funds on deposit in his
account with appellee.
-Actual return was not made to the Federal Reserve
Bank until Wed. This delay was caused by the fact
that bank examiners came and assumed control of all
the records of the bank, including cash items, on Mon
NEGO - Quevedo 65
Camille Umali
unless its return has been demanded, will not
amount to an acceptance..."
morning. Urwiller was advised by the Ravenna bank
late Thurs afternoon, of the fact that payment of the
check had been refused although the check was not
actually returned to him until Saturday. The check has
never been paid.
ISSUE
WON retention of a check by a drawee bank for more
than 24 hours after it is presented to it for payment
constitutes an acceptance of the instrument so that
the drawee bank is bound to pay it
HELD: NO
Ratio 'Presentment for payment and presentment for
acceptance are two different acts well known to the
law of negotiable instruments. The difference
between the object and effect of presentation for
these respective purposes is very marked. Payment
extinguishes the debt and puts an end to the paper
evidencing the same, while acceptance has the very
opposite effect. It creates a new liability upon the part
of the acceptor, and gives new life to the instrument.'
-In absence of statutory right, holder would be left to
his common law rights, for either breach of contract or
for tortious breach of duty, by drawee bank which had
refused payment on grounds of insufficiency of funds
in drawer's account.
Disposition Trial court was correct in dismissing his
petition. We affirm.

SUMCAD V PROVINCE OF SAMAR
52 O.G. 18, 7582 (1956)
~cHa~
FACTS
SUBJECT: check for P25k, cannot be paid
because of insufficient funds
DRAWER: Province of Samar
DRAWEE: PNB, Cebu Branch
PAYEE: Paulino Santos
SUBSEQUENT INDORSEMENTS: Paulino Santos
indorsed to James McGuire then transferred to
Sumcad et.al.
-James McGuire presented the check to municipal
treasurer of Borongan for payment, the latter did
not pay or did not choose to pay. McGuire wrote
letters to the Bureau of Posts seeking payment
for check. Director of the Bureau of Posts
referred to PNB.
(Note: McGuire did not present check directly to
PNB.)
-PNB requested photostatic copies of the check was
received by bank. (Province of Samar by this
time still had P84,287.47)
-Procedural requirements still asked from McGuire so
by the time the check was transferred to Sumcad
et al., Province of Samar already withdrew from
their PNB account P83,504.07 leaving only
P743.43.
-Sumcad et al were not able to encash check so they
sued Province of Samar and PNB. PNB was held
solidarily liable with Province of Samar. Hence,
this appeal.
ISSUE
NEGO - Quevedo 66
Camille Umali
1. WON PNB constructively accepted to assume the
obligation
2. WON PNB is solidarily liable
HELD
1. YES.
-When PNB requested photostatic copies of the
check from the Bureau of Posts and McGuire to
present check to provincial treasurer and
provincial auditor for certification, it voluntarily
assumed the obligation of holding so much of the
deposit of the province of Samar as would be
sufficient to cover the amount of the check, or
before allowing the withdrawal that exhausted
said deposit, of making the necessary inquiry on
the matter. It would be an empty gesture if the
appellant did not mean to assume the obligation
of paying the check and holding sufficient deposit
of the drawer for the purpose.
2. NO.
-PNBs liability is only subsidiary to that of the
Province of Samar which is primarily liable
thereon.
Disposition. Decision affirmed.
PADILLA, dissenting:
PNB should not be liable at all. When it requested the
Bureau of Posts to furnish it with photostatic
copies of the check, it only means that the
original check was not presented to it for
payment! The act of requesting did not create an
obligation on the part of PNB.

COOLIDGE V PAYSON
2 Wheat 66, 4 L. Ed. 185 (1817)
~jojo~
FACTS
DRAWER: Cornhwaite & Cary
DRAWEE: Collidge & Co. (defendant)
PAYEE: John Randall
INDORSEE: Payson & Co. (plaintiff)
- Coolidge held proceeds of the cargo of the Hiram
claimed by Cornthwaite. Corthwaite executed
bonds of indembity an executed srolls and drew
on them for $2,700, payable to Randall, and
endorsed by him to Payson. Coolidge wrote to
Corthwaite stating that, since there is no seal to
any of the signatures, it is necessary to ascertain
the legality of the scrolls. Coolidge wrote to its
friend, William, who was to determine whether
the draft was to be honored. William replied,
approving the bond.
-Cornthwaithe called on William to inquire whether he
had satisfied Coolidge respecting the bond.
Williams stated the substance of the letter he had
written, and read to him a part of it. Payson also
called on him to make the same inquiry, to whom
he gave the same information and also read the
letter he had written.
REPUBLIC V PHIL. NATL BANK
L-No. 16106, Dec. 30, 1961; 3 SCRA 851
~kiyo~
FACTS
-RP filed a complaint for escheat of certain unclaimed
bank deposit balances against several banks
under Act. 3936 which provides that unclaimed
balances (w/c includes credits or deposits of
money, bullion, security and other evidence of
indebtedness of any kind + interest) in favor of
persons not heard from for 10 years or more, with
the increase and proceeds thereof, shall be
deposited with the Insular Treasurer to the credit
of the Phil. Government. Among these banks was
the First National City Bank of New York who
argued that some of its credits didnt fall within
the purview of the Act. The court held that
cashiers checks and demand drafts fall under
the Act but upon MFR changed its view and
excluded drafts, hence this appeal.
ISSUE
WON demand drafts create a creditor-debtor
relationship between drawee and payee, thus
falling within the meaning of credits in Act. 3969 Disposition TC decision modified; telegraphic
HELD: NO
NEGO - Quevedo 67
Camille Umali
-2 days later, a bill was drawn by Cornthwaite and
paid to Payson in part of the protested bill of
$2,700.it was presented to Coolidge, who refused
to accept it.
ISSUE
WON Coolidge is deemed to have accepted the bill,
hence liable to Payson
HELD: YES
-A promise to accept a bill amounts to an acceptance
to a person who has taken it on the credit of that
promise, although the promise was made before
the existence of the bill, and although it is drawn
in favor of a person who takes it for a pre-existing
debt
-Upon a review of several cases, the court holds that
a letter written within a reasonable time before or
after the bill of exchange, describing it in terms
not to be mistaken, and promising to accept it, is
if shown to the person who afterwards takes the
bill on the credit of the letter, a virtual acceptance
binding the person who makes the promise.
-A demand draft is not of the same category as a
cashiers check which should fall under the Act.
In banking terminology, the term bank draft is used
interchangeably with a bill of exchange. A bill of
exchange under the NIL (sec. 127) does not
operate as an assignment of funds in the hands
of the drawee who is not liable on the instrument
until he accepts. In fact, the law requires
presentment w/in a reasonable time or else the
drawer is discharged from liability. Since it is
admitted in this case that the drafts in question
were never presented either for acceptance or
payment, appellee bank never became a debtor
of the payees, hence the drafts never became
credits under the Act.
-Drafts must however be distinguished from cashiers
checks, which is simply a bill of exchange drawn
by the bank on itself; it is equivalent to a certified
check and its deposit passes to the credit of the
holder who then becomes a depositor of that
amount.
transfer payment orders should be escheated to
RP (see case for telegraphic orders)

PAL V CA, Galano, del Rosario, Tan
G.R. No. 24188; Jan 30, 1990; Gutierrez, Jr.
~athe~
FACTS
-Amelia Tan commenced a complaint for damages.
The CFI of Manila rendered judgment in favor of
Tan and against PAL. PAL appealed and the
amount of damages was lowered to a total of
P30, 000.00. The judgment became final and
executory there being no further appeal taken.
-Tan filed a motion for the issuance of a writ of
execution of the judgment. Judge Galano issued
its order of execution and it was duly referred to
Deputy Sheriff Emilio Z. Reyes.
-Four months later, Tan moved for the issuance of an
alias writ of execution stating that the judgment
remained unsatisfied.
-PAL filed an opposition stating that it had already
fully paid its obligation to Tan through the deputy
sheriff Reyes as evidenced by cash vouchers
properly signed and receipted by Sheriff Reyes
(PAL issued a check amounting to P30,000.00 in
the name of Sherriff Reyes and not in the name
of Tan). However, Sherriff Reyes encashed the
check but failed to surrender the amount to Tan.
He, instead, absconded.
-Judge Galano granted Tans Motion for Alias Writ of
Execution and directed Special Sheriff del
Rosario to levy on execution. Consequently, Del
Rosario served a notice of garnishment on the
depository bank of PAL. Because of this, PAL
filed this instant petition
ISSUES
1. WON an alias writ of execution be issued without a
prior return of the original writ by the
implementing officer
2. WON payment of judgment to the implementing
officer as directed in the writ of execution
constitutes satisfaction of judgment
HELD
1. YES.
Ratio Technicality cannot be countenanced to defeat
the execution of a judgment for execution is the
fruit and end of the suit and is very aptly called
the life of the law. A judgment cannot be
rendered nugatory by the unreasonable
application of a strict rule of procedure. Vested
rights were never intended to rest on the
requirement of a return, the office of which is
merely to inform the court and the parties, of any
and all actions taken under the writ of execution.
Where such information can be established in
some other manner, the absence of an executing
officer's return will not preclude a judgment from
being treated as discharged or being executed
through an alias writ of execution as the case
may be.
2. General Rule (under ordinary circumstances):
YES
NEGO - Quevedo 68
Camille Umali
Article 1240, NCC. "Payment shall be made to the
person in whose favor the obligation has been
constituted, or his successor in interest, or any
person authorized to receive it."
Exception (under peculiar circumstances like in
this case): NO
a. Unless authorized to do so by law or by consent of
the obligee, a public officer has no authority to
accept anything other than money in payment of
an obligation under a judgment being executed.
Strictly speaking, the acceptance by the sheriff of
the petitioner's checks, in the case at bar, does
not, per se, operate as a discharge of the
judgment debt. 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 (Sec. 189, Act 2031 on
Negs. Insts.; Art. 1249, Civil Code) A check,
whether a manager's check or ordinary check, is
not legal tender, and an offer of a check in
payment of a debt is not a valid tender of
payment and may be refused receipt by the
obligee or creditor. 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 (Art. 1249, Civil
Code, par. 3).
b. It is argued that if PAL had paid in cash to Sheriff
Reyes, there would have been payment in full
legal contemplation. The reasoning is logical but
is it valid and proper? Logic has its limits in
decision making. We should not follow rulings to
their logical extremes if in doing so we arrive at
unjust or absurd results.
c. PAL was negligent. Making the checks payable to
the judgment creditor would have prevented the
encashment or the taking of undue advantage by
the sheriff, or any person into whose hands the
checks may have fallen, whether wrongfully or in
behalf of the creditor. The issuance of the checks
in the name of the sheriff clearly made possible
the misappropriation of the funds that were
withdrawn.
Disposition Petition dismissed.
NARVASA, Dissenting Opinion
-A sheriff is authorized to receive payments on
account of the judgment debt tendered by "a
person indebted to the judgment debtor," and his
"receipt shall be a sufficient discharge for the
amount so paid or directed to be credited by the
judgment creditor on the execution" (sec. 41,
Rule 39).
-The sheriff is an adjunct of the court; a court
functionary whose competence involves both
discretion and personal liability. Being an officer
of the court and acting within the scope of his

authorized functions, the sheriff's receipt of the
checks in payment of the judgment execution,
may be deemed, in legal contemplation, as
received by the court itself.
-If payment had been in cash, no question about its
validity or of the authority and duty of the sheriff
to accept it in settlement of PAL's judgment
obligation would even have arisen. Simply
because it was made by checks issued in the
sheriff's name does not warrant reaching any
different conclusion.
FELICIANO, Dissenting Opinion
-The risk of the sheriff faithfully performing his duty as
a public officer is most appropriately borne NOT
by the judgment debtor/creditor, nor upon those
members of the general public who are
compelled to deal with him, but by the STATE
itself. The judgment creditor, in circumstances
like those of the instant case, could be allowed to
execute upon the absconding sheriffs bond.
FORTUNADO V CA, Campano, Bautista, Register of Deeds, and National Steel Corporation
GR 78556; 196 SCRA 269; Cruz; April 21, 1991
~giulia~
FACTS
-In a civil case, the RTC rendered judgment ordering
Angel Bautista to pay damages to Alfero
Fortunado. Pursuant to said judgment, the Sheriff
levied upon 2 parcels of land registered in the
name of Bautista, but 1 of the said parcels of land
was already sold to the National Steel
Corporation (NSC).
The properties were sold to the petitioner as the only
bidder in a public auction.
-NSC then gave notice to the sheriff of its intention to
redeem the property it owned. The sheriff
suggested as the 2 lots were sold together that
both of them should be redeemed.
NSC filed with the TC an urgent motion to redeem,
which was opposed by the petitioners on the
ground that the movant did not have the
personality to intervene.
-As the motion remained unresolved, the NSC issued
to the sheriff a PNB check for the
properties.Bautista sent the sheriff a letter
bearing NSC's conformity in which he availed
himself of SC's check to redeem the properties.
His letter contained the ff reservation:
This redemption is made solely for the purpose of
effecting the execution and delivery to me of the
necessary certificate of redemption and the same
shall not be taen to mean my accknowledgment of
the validity of the said writ of execution and sale,
both of which I shall continue to contest, nor shall
this be taken to mean as a waiverr on my part of the
legal reights and remedies available to me under the
circumstances.
-Sheriff issued the certificate of redemption in favor of
NSC and Bautista. Bautista later on wrote to the
NEGO - Quevedo 69
Camille Umali
PADILLA, Dissenting Opinion
-He has underscored the obligation of the sheriff,
imposed upon him by the nature of his office and
the law, to turn over such legal tender, checks
and proceeds of execution sales to the judgment
creditor. The failure of a sheriff to effect such
turnover and his conversion of the funds (or
goods) held by him to his own uses, do not have
the effect of frustrating payment by and
consequent discharge of the judgment debtor.
-If the plaintiff fails to receive it, his only remedy is
against the officer.
-When PAL delivered the checks to the Sheriff, the
latter was accompanied by the counsel of Tan.
Prudence dictates that the counsel of Tan should
have insisted on their immediate encashment by
the Sheriff with the drawee bank in order to
promptly get hold of the amount belonging to his
client.
sheriff that he would no longer effect the
redemption because there was nothing to
redeem, the auction sale being null and void.
-Bautista, in an Urgent Motion, prayed that the sum
covered by the PNB check be delivered to and
kept by the clerk of court until such time as all
incidents relative to the validity of the auction sale
were finally resolved.
Sheriff notified the petitioners' counsel of the deposit
of the PN check. Counsel told the check that he
was rejecting the check as it was not legal
tender.
-Respondent court held that NSC's redemption was
absolute and unconditional in view of its refusal
to join Bautista in contesting the validity of the
sale. However, the validity of the redemption was
dependent on the validity of the certificate of sale,
which still has to be resolved by the TC. Motion
for partial reconsideration by petitioner was
denied.
ISSUE
WON there was valid redemption.
HELD: YES.
Although the private respondents in the case did not
file a redemption case against the petitioners,
NSC filed an urgent motion for redemption within
the redemption period.
In the US, it has been held and recognized that a
payment by check or draft or bank bill or currency
which is not legal tender is effective if the officer
accepts such payment. If in good faith, the
redemptioner pays, and the officer receives
before the expiration of the time of redemption,

an ordinary banker's check, the payment is
regarded as sufficient.
The Court does not, by this decision, sanction the use
of check for the payment of obligations over the
objection of the creditor. It is just that a check
may be used for the exercise of the right of
redemption, the same being a right and not an
obligation. The tender of a check is sufficient to
MESINA V IAC [Gonong, Go and Uy]
L-70145; Nov. 13, 1986; 145 sCRA 499; Paras
~ajang~
FACTS
-Jose Go purchased from Associated Bank a
cashiers check worth P800,000. Accidentally, he
left the check on top of the desk of the bank
manager when he left the bank. The bank
manager entrusted the check for safekeeping to
bank official, Albert Uy, who then had a visitor,
Alexander Lim. Uy had to answer a telephone
call, then he went t the mens room. When he
returned to the desk, his visitor Lim was already
gone and so was the check. When Jose Go
returned to the bank, the check was nowhere to
be found.
-Uy advised Go to accomplish a sop payment order.
Go also executed an affidavit of loss. Uy also
went to the police station to report the loss,
pointing to Alexander Lim as the one who could
shed light on it.
-Associated Bank received the lost check 2 days after
for clearing, coming from Prudential bank. The
check was immediately dishonored by
Associated Bank and returned to Prudential with
the words, Stop Payment. The check was
again returned to Associated Bank and for the 2nd
time, it was dishonored.
-Several days later, Associated Bank received a letter
from Atty. Lorenzo Navarro demanding payment
for the check and threatened to sue. He refuses
to reveal who his client is. Unsure with what to do
with the matter, Associated Bank filed for an
Interpleader. The client turned out to be one
named Mesina. He said the check was paid to
him by Alexander Lim in a certain transaction but
refused to elucidate further. Mesina filed a
complaint for damages.
-TC rendered a decision on the interpleader ordering
Associated Bank to replace Jose Gos check or
pay its cash equivalent. Mesinas complaint on
the other hand was dismissed. The issue in that
case is who between Mesina and Go are entitled
for the payment of the check. Since this issue
NEGO - Quevedo 70
Camille Umali
compel redemption but it is not in itself a payment
that relieves the redemption bt is not in itself a
payment that relieves the redemtioner from his
liiability t pay the redemption price. While the
private respondents have properly exercised their
right of redemption, they remain liable for the
payment of the redemption price.
had been resolved in the other case, it has
become moot and academic.
ISSUE:
WON the lower courts ruling in the interpleader case
should be set aside.
HELD: NO.
Mesina invokes theories on causes and effects of a
cashiers checks such as 1) it cannot be
countermanded in the hands of a holder in due
course and 2) a cashiers check is a bill of
exchange drawn by the bank against itself. But
these are general principles which cannot be
aptly applied to the case at bar without
considering other things.
-Mesina failed to substantiate that he is a holder in
due course. He refused to say how and why the
check was passed to him. He therefore had
notice of the defect of his title over the check
from the start.
-Next, the check was bought by Jose Go from the
bank for purposes of transferring his bank from
Associated Bank to a nearby bank, thinking that
carrying a check would be safer than carrying
cash; it was not issued in payment of an
obligation. The check was Jose Gos property
when it was misplaced or stolen. Bank was
therefore liable to no one else but Jose Go.
-When the payment was stopped, it was not the bank
who did it but Jose Go. The bank could not be
the drawer and drawee for clearly, Jose Go owns
the money it represents and he is therefore the
drawer and drawee in the same manner as if he
has a current account and he issued a check
against it. No one outside Jose Go can be termed
a holder in due course because Go had not
indorsed it in due course.
NOTE: Clear implication from the case is that if
Mesina had been a holder in due course, the
court would have granted recovery.

INTL CORPORATE BANK V GUECO
351 SCRA 516; Kapunan; Feb 1, 2001
FACTS
-Spouses Gueco obtained a loan from International
Corporate Bank (now Union Bank of the
Philippines) to purchase a car a Nissan Sentra
1600 4DR, 1989 Model. In consideration, the
Spouses executed promissory notes which were
payable in monthly installments and chattel
mortgage over the car to serve as security for the
notes. The Spouses defaulted in payment of
installments. The Bank filed a civil action for
Sum of Money with Prayer for a Writ of
Replevin before MTC Pasay City. Dr. Francis
Gueco was served summons and was fetched by
the sheriff and representative of the bank for a
meeting in the bank premises. Desi Tomas, the
Banks 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, the car was detained inside the banks
compound. 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.
Dr. Gueco delivered a managers check in the
amount of P150,000.00 but the car was not
released because of his refusal to sign the Joint
Motion to Dismiss. It is their contention that Dr.
Gueco need not sign the motion for joint
dismissal considering that they had not yet filed
their Answer. However, the Bank 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 Spouses initiated a civil
action for damages before MTC Quezon City.
-MTC QC: dismissed the complaint for lack of merit.
-RTC QC: MTC decision reversed and 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. Also, the Bank is
ordered to return the car to the Spouses; the
Bank may deposit the Managers check the
proceeds of which have long been under the
control of the issuing bank in favor of the Bank
since its issuance, whereas the funds have long
been paid by the Spouses to secure said
Managers Check, over which the Spouses have
no control. Moreover, the Bank is ordered to pay
the Spouses the P50,000.00 as moral damages;
NEGO - Quevedo 71
Camille Umali
P25,000.00 as exemplary damages, and
P25,000.00 as attorneys fees, and to pay the
cost of suit.
-CA: Petition for review on certiorari is hereby
DENIED and the RTC Decision is AFFIRMED in
toto as CA essentially relied on the finality of the
findings of facts by the lower court and on the
latter's finding of the existence of fraud which
constitutes the basis for the award of damages.
ISSUES
1. WON there was no agreement with respect to the
execution of the joint motion to dismiss as a
condition for the compromise agreement
2. WON granting moral and exemplary damages and
attorneys fees in favor of Sps Gueco is proper
3. WON the Bank must return the subject car to the
Sps. Gueco, without making any provision for the
issuance of the new managers/cashiers check
by the Spouses in favor of the Bank in lieu of the
original cashiers check that already became
stale
HELD
1. YES
-In support of its claim, The Bank presented the
testimony of Mr. Jefferson Rivera who related
that Dr. Gueco was aware that the signing of the
draft of the Joint Motion to Dismiss was one of
the conditions set by the bank for the acceptance
of the reduced amount of indebtedness and the
release of the car. The Spouses, however,
maintained that no such condition was ever
discussed during said meeting. If it is true that the
signing of the joint motion was a condition sine
qua non for the reduction of the Spouses
obligation, it is only reasonable and logical to
assume that the joint motion should have been
shown to Dr. Gueco in the said meeting. Why Dr.
Gueco was not given a copy of the joint motion
on the day of the meeting, for his family or legal
counsel to see to be brought signed, together
with the P150,000.00 in managers check form to
be submitted on the following day?
-It is more logical to conclude that only an oral
compromise agreement, whereby the original
claim of the bank of P184,985.09 was reduced to
P150,000.00 and that upon payment of which,
plaintiff was informed that the subject motor
vehicle would be released to him happened
during that said meeting.
2. NO
-Fraud has been defined as the deliberate intention to
cause damage or prejudice. It is the voluntary
execution of a wrongful act, or a willful omission,
knowing and intending the effects which naturally
and necessarily arise from such act or omission;

the fraud referred to in Article 1170 of the Civil
Code is the deliberate and intentional evasion of
the normal fulfillment of obligation. We fail to see
how the act of the bank in requiring the Spouses
to sign the joint motion to dismiss could constitute
as fraud. True, the Bank may have been remiss
in informing Dr. Gueco that the signing of a joint
motion to dismiss is a standard operating
procedure of the bank. However, this can not in
anyway have prejudiced Dr. Gueco. It should,
likewise, be noted that in cases of breach of
contract, moral damages may only be awarded
when the breach was attended by fraud or bad
faith. The law presumes good faith.
3. NO
-The Bank would make us hold that petitioner should
return the car or its value and that the latter,
because of its own negligence, should suffer the
loss occasioned by the fact that the check had
become stale. It is their position that delivery of
the managers check produced the effect of
payment and, thus, the Bank was negligent in
opting not to deposit or use said check.
Rudimentary sense of justice and fair play would
not countenance the Spouses position.
-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. Under the negotiable instruments law, an
instrument not payable on demand must be
presented for payment on the day it falls due.
When the instrument is payable on demand,
presentment must be made within a reasonable
time after its issue. In the case of a bill of
exchange, presentment is sufficient if made
within a reasonable time after the last negotiation
thereof.
-A check must be presented for payment within a
reasonable time after its issue, and in
determining what is a reasonable time, regard is
to be had to the nature of the instrument, the
usage of trade or business with respect to such
instruments, and the facts of the particular case.
The test is whether the payee employed such
diligence as a prudent man exercises in his own
affairs. This is because the nature and theory
behind the use of a check points to its immediate
use and payability. In a case, a check payable on
demand which was long overdue by about two
and a half (2-1/2) years was considered a stale
check. Failure of a payee to encash a check for
more than ten (10) years undoubtedly resulted in
the check becoming stale. Thus, even a delay of
one (1) week[27] or two (2) days, under the
NEGO - Quevedo 72
Camille Umali
specific circumstances of the cited cases
constituted unreasonable time as a matter of law.
-In the case at bar, however, the check involved is not
an ordinary bill of exchange but a managers
check. A managers check is one drawn by the
banks manager upon the bank itself. It is similar
to a cashiers check both as to effect and use. A
cashiers check is a check of the banks cashier
on his own or another check. In effect, it is a bill
of exchange drawn by the cashier of a bank upon
the bank itself, and accepted in advance by the
act of its issuance. It is really the banks own
check and may be treated as a promissory note
with the bank as a maker. The check becomes
the primary obligation of the bank which issues it
and constitutes its written promise to pay upon
demand. The mere issuance of it is considered
an acceptance thereof. If treated as promissory
note, the drawer would be the maker and in
which case the holder need not prove
presentment for payment or present the bill to the
drawee for acceptance.
-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. Failure to
present on time, thus, does not totally wipe out all
liability. In fact, the legal situation amounts to an
acknowledgment of liability in the sum stated in
the check. In this case, the Spouses have not
alleged, much less shown that they or the bank
which issued the managers check has suffered
damage or loss caused by the delay or non-
presentment. Definitely, the original obligation to
pay certainly has not been erased.
-It has been held that, if the check had become stale,
it becomes imperative that the circumstances that
caused its non-presentment be determined. In
the case at bar, there is no doubt that the bank
held on the check and refused to encash the
same because of the controversy surrounding the
signing of the joint motion to dismiss. We see no
bad faith or negligence in this position taken by
the Bank.
Disposition Petition for review is given due course.
CA decision affirming RTC decision is SET
ASIDE. Spouses Gueco is ordered to pay the
original obligation amounting to P150,000.00 to
the Bank upon surrender or cancellation of the
managers check in the latters possession,
afterwhich, the Bank is to return the subject
motor vehicle in good working condition.

NEW PACIFIC TIMBER & SUPPLY CO V SENERIS
L-41764, Dec. 19, 1980; 101 SCRA 686
~glaisa~
FACTS
SUBJECT: Equitable Bank Cashiers Check for P50k
dated Jan. 3, 1975
DRAWER: New Pacific Timber
-New Pacific failed to comply with his judgment
obligation. Judge issued writ of execution for
P63,130 to which the Sheriff levied upon
personal properties and set the auction sale on
Jan. 15. Prior to the scheduled sale, New Timber
deposited with the Clerk of Court the P50,000
check and P13,130 in cash.
-Seneris refused to accept check and cash. Sheriff
proceeded with the auction sale.
ISSUE
WON Seneris can validly refuse acceptance of the
payment of the judgment obligation made by New
WACHTEL V ROSEN
248 NY 386, 164 NE 326
~RPR~
FACTS
Plaintiff received from Arthur Wachtel a check drawn
on National Park Bank which plaintiff presented
to said bank for certification. The bank refused to
certify the check.
ISSUE
WON the refusal of the drawee bank to certify the
check is equivalent to a dishonor of the check
such that holder may sue the drawer as if the
check was presented for payment and payment
had been refused
HELD: NO
-The general rule is that a check is of right
presentable only for payment, and that the bank
NEGO - Quevedo 73
Camille Umali
Timber, consisting of the Cashiers Check and
cash.
HELD: NO
-A Cashiers Check is deemed as cash. Moreover,
since the check had been certified by the drawee
bank, by the certification, the funds represented
by the checks are transferred from the credit of
the maker to that of the payee or holder, and for
all intents and purposes, the latter becomes the
depositor of the drawee bank, with rights and
duties of one in such situation. The certification is
equivalent to acceptance.
-The object of certifying a check as regards both
parties is to enable holder to use it, as money.
When the holder procures the check to be
certified, the check operates as an assignment of
a part of the funds to the creditors.
is under no obligation to certify, although it may
do so.
-When a bank certifies a check at the request of the
holder, a new obligation is created. Under
Section 324, the drawer and all the endorsers are
discharged from liability if the check is accepted
or certified. The acceptance of a bill of exchange,
on the other hand, does not discharge the
liability. The certification differs in effect from
mere acceptance of bills other than checks, in
that it is not an added obligation but a substitute
obligation. Certification of the check by the bank
is equivalent to payment. The bank in this case
may not be prepared to substitute itself with the
drawer.
Disposition Judgment affirmed.

ROMAN CATHOLIC BISHOP OF MALOLOS, INC V
IAC [Robes-Francisco Realty and Devt Corp]
G.R. No. 72110; Sarmiento; Nov 16, 1990
~owen~
FACTS
-July 7, 1971 > the subject contract over the land, a
20,655 sq.m. in Bulacan, issued and registered in
the name of the Roman Catholic Bishop of
Malolos which it sold to the Robes-Francisco
Realty and Devt for P123,930.00).
in question was executed stipulating for a
downpayment of P23,930.00 and the balance of
P100,000.00 plus 12% interest per annum to be
paid within four (4) years from execution of the
contract, that is, on or before July 7, 1975. The
contract likewise provides for cancellation,
forfeiture of previous payments, and
reconveyance of the land in question in case
Robes-Francisco Realty and Development would
fail to complete payment within the said period.
-March 12, 1973 > Robes-Francisco addressed a
letter to Father Vasquez, parish priest of San
Jose Del Monte, Bulacan, requesting to be
furnished with a copy of the subject contract and
the supporting documents.
-July 17, 1975 > admittedly after the expiration of the
stipulated period for payment, Robes-Francisco
wrote Roman Catholic a formal request that her
company be allowed to pay the principal amount
of P100,000.00 in three (3) equal installments of
six (6) months each with the first installment and
the accrued interest of P24,000.00 to be paid
immediately upon approval of the said request.
-July 29, 1975 > Roman Catholic formally denied the
said request of Robes-Francisco, but granted the
latter a grace period of five (5) days from the
receipt of the denial to pay the total balance of
P124,000.00, otherwise, the provisions of the
contract regarding cancellation, forfeiture, and
reconveyance would be implemented.
-August 4, 1975 > Robes-Francisco wrote Roman
Catholic requesting an extension of 30 days from
said date to fully settle its account.
-August 7, 1975 > Roman Catholic denied the request
for an extension of the grace period.
-August 22, 1975 > Robes-Francisco protested
alleged refusal of the latter to accept tender of
payment purportedly made by the former on
August 5, 1975, the last day of the grace period
and demanded the execution of a deed of
absolute sale over the land in question and after
which it would pay its account in full, otherwise,
judicial action would be resorted to.
-August 27, 1975 > Roman Catholic refused to
execute the deed of absolute sale due to its
failure to pay its full obligation. Moreover, Roman
Catholic denied that Robes-Francisco had made
any tender of payment whatsoever within the
grace period. In view of this alleged breach of
contract, Roman Catholic cancelled the contract
NEGO - Quevedo 74
Camille Umali
and considered all previous payments forfeited
and the land as ipso facto reconveyed.
-TC: Failure of Robes-Francisco to present in court
the certified personal check allegedly tendered as
payment or, at least, its xerox copy, or even bank
records thereof is fatal. And Robes-Francisco
was found to have insufficient funds to fulfill the
entire obligation considering that its president,
Atty. Francisco, only had a savings account
deposit of P64,840.00, and although the latter
had a money-market placement of P300,000.00,
the same was to mature only after the expiration
of the 5-day grace period. TC declares the
subject contract cancelled and Robes-
Franciscos downpayment of P23,930.00 forfeited
in favor of Roman Catholic, and hereby
dismisses the complaint
-IAC: reversed TC decision as Robes-Francisco has
a total available sum of P364,840.00 and their
disposal on or before August 4, 1975 to answer
for the obligation of the Roman Catholic. It was
not correct for the trial court to conclude that
Robes-Francisco had only about P64,840.00 in
savings deposit on or before August 5, 1975, a
sum not enough to pay the outstanding account
of P124,000.00.
ISSUES
1. WON finding that Robes-Francisco had sufficient
available funds on or before the grace period for
the payment of its obligation is proof that it did
tender of payment for its said obligation within
said period
2. WON there is legal obligation on the part of Roman
Catholic to execute a deed of absolute sale in
favor of the Robes-Francisco before the latter
has actually paid the complete consideration of
the sale where the contract between and
executed by the parties stipulates
3. WON an offer of a check is a valid tender of
payment of an obligation under a contract which
stipulates that the consideration of the sale is in
Philippine Currency
HELD
1. NO
-A finding that Robes-Francisco had sufficient
available funds on or before the grace period for
the payment of its obligation does not constitute
proof of tender of payment by the latter for its
obligation within the said period. Tender of
payment involves a positive and unconditional act
by the obligor of offering legal tender currency as
payment to the obligee for the former's obligation
and demanding that the latter accept the same.
Thus, tender of payment cannot be presumed by
a mere inference from surrounding

circumstances. At most, sufficiency of available
funds is only affirmative of the capacity or ability
of the obligor to fulfill his part of the bargain. But
whether or not the obligor avails himself of such
funds to settle his outstanding account remains to
be proven by independent and credible evidence.
Tender of payment presupposes not only that the
obligor is able, ready, and willing, but more so, in
the act of performing his obligation. Ab posse ad
actu non vale illatio. "A proof that an act could
have been done is no proof that it was actually
done."
2. NO
-Although admittedly the documents for the deed of
absolute sale had not been prepared, the subject
contract clearly provides that the full payment by
the private respondent is an a priori condition for
the execution of the said documents by Roman
Catholic.
That upon complete payment of the agreed
consideration by the herein VENDEE, the
VENDOR shall cause the execution of a Deed of
Absolute Sale in favor of the VENDEE.
-What Robes-Francisco should have done if it was
indeed desirous of complying with its obligations
would have been to pay Roman Catholic within
the grace period and obtain a receipt of such
payment duly issued by the latter. Thereafter, or,
allowing a reasonable time, Robes-Francisco
could have demanded from Roman Catholic the
execution of the necessary documents. In case
BULLIET V ALLEGHENY TRUST CO
284 Pa. 561, 131 Atl. 471 (1925)
~maia~
FACTS
SUBJECT: a check for $5000
DRAWER: Mitchell, as buyer of an oil property
DRAWEE: Allegheny Trust Co
PAYEE: Bulliet, as seller of the the oil property
-the memorandum of agreement of the parties
provided that the 5000 would be given in escrow
in evidence of good faith that Mitchell would pay
the remainder of the purchase price. In the event
of Mitchells failure to pay, the 5000 would be
forfeited in favor of Buillet. Mitchell made sure
with Allegheny that it had enough funds. Buillet
then sent a telegram to Allegheny inquiring
whether it would honor Mitchells check, and the
bank replied through wire that it would.
-Mitchell did not pay the purchase price. Buillet then
claimed from Allegheny, but the latter refused to
pay because Mitchell had given a stop payment
order. Allegheny also insisted that, putting itself
in the position of Mitchell, there was no transfer
of title as to the property being conveyed as there
was failure of consideration, thus it should not be
liable to pay since Mitchell itself would not be
liable to pay. (in effect, Allegheny invoked the
defense available to Mitchell)
NEGO - Quevedo 75
Camille Umali
Roman Catholic refused, Robes-Francisco could
have had always resorted to judicial action for the
legit enforcement of its right.
3. NO
-A certified personal check is not legal tender nor the
currency stipulated, and therefore, cannot
constitute valid tender of payment. The first
paragraph of Art. 1249CC provides that "the
payment of debts in money shall be made in the
currency stipulated, and if it is not possible to
deliver such currency, then in the currency which
is legal tender in the Philippines.
-PAL v. CA > 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. A check, whether a manager's
check or ordinary check, is not legal tender, and
an offer of a check in payment of a debt is not a
valid tender of payment and may be refused
receipt by the obligee or creditor.
-Hence, where the tender of payment by Robes-
Francisco was not valid for failure to comply with
the requisite payment in legal tender or currency
stipulated within the grace period and as such,
was validly refused receipt by Roman Catholic,
the subsequent consignation did not operate to
discharge the former from its obligation to the
latter.
Disposition Petition for review on certiorari granted.
IAC decision set aside and annulled. RTC
decision reinstated.
ISSUE
WON Allegheny is liable for the amount under the
circumstances
HELD: YES
-the reply of Allegheny that it would honor the check
amounted to certification of the bank, thus
making it liable
-the effect of the banks certifying a check at the
request of the holder is to create a new obligation
on the part of the bank to that holder, the amount
of the check passes to the credit of the holder,
who is thereafter a depositor to that amount
-the obligation of the acceptor is to pay the instrument
according to the tenor of his acceptance. It has
been said that an acceptor admits everything
essential to the validity of the bill, and on this
ground he cannot, for example, even set up the
defense of want of consideration between the
parties.
-the acceptor cannot defend on the ground of want of
consideration between the drawer and the payee
Disposition Judgment affirmed (Allegheny liable to
pay Buillet)

SUTTER V SECURITY TRUST CO
96 N.J. Eq. 644 A. 435, 35 A.L.R. 938 (1924)
~da~
FACTS
SUBJECT: Checks
DRAWER: Mr. Sutter
DRAWEE: Security Trust Co.
PAYEE: Mrs. Sutter
INDORSEE: Mr. Mack
-Mr. Sutter drew a check in favor of his wife on March
25 1922 in the amount of $1000 for which he
procured the certification of drawee Security
Trust Co. The check was delivered to his wife in
consideration of a certain agreement between
them concerning their separation. The wife
violated said agreement after the delivery of the
check to her.
-On March 27, 1922 Mr. Sutter requested that
payment be stopped upon the check because of
Mrs. Sutters violation of their agreement. Mrs
Sutter on the same day went to her brother Mr.
Mack and indorsed the check to him and he
deposited it in his bank in Philadelphia.
-March 30, through the Federal Reserve Bank of
Philadelphia, the check was presented to
Security Trust Co for payment which was refused
on ground of payment stopped. Respondent
told Mr. Sutter that the check was in the hands of
an innocent third person for value and that unless
he indemnified respondent the check would be
paid. He refused to indemnify respondent, thus
respondent paid the check upon subsequent
presentment. Mr. Sutter demanded the payment
to him of his alleged balance of $1034.41 w/c
includes the $1000 drawn w/c was refused
except as to balance of $34.
NEGO - Quevedo 76
Camille Umali
ISSUE
WON Security Trust Co. was justified in paying the
indorsee Mr. Mack the $1000 value of the check
HELD: YES.
-The Bank was justified and legally called upon to
make payment to Mrs. Sutter upon presentation
and demand as against the notice of the maker of
the check to stop payment, its obligation under
the facts was likewise to make the payment to
the indorsee holder Mr. Mack
Reasoning: A check may be certified by the bank at
the request of the payee or the holder, when the
check is certified at the request of the drawer or
maker before it reaches the hands f the payee
therein named. When such a certification is made
and there is delivery to the payee, under the
circumstances and conditions making him a bona
fide holder for value, without notice of defects
therein then the instrument is beyond recall by
the maker as against the payee. He may only do
so (recall) if the payee is not a bona fide holder
for value but has obtained the check by fraud
perpetrated by him upon the maker.
-In this case since Mr. Mack is not a holder in due
course, it is necessary to inquire whether the
bank by reason of its certification would have
been justified in making payment to Mrs. Sutter
the payee upon proper presentation of the check
by her notwithstanding the service of notice to
stop payment by her husband the maker and the
disclosure by him to the bank of the conditions
upon which the check was obtained by Mrs.
Sutters. There is nothing in the case that indicate
that Mrs Sutter procured the check by any fraud
perpetrated by her to her husband.

PNB V PICORNELL
Romualdez; 46 Phil. 716 (1922)
~bry_sj~
FACTS
SUBJECT: Bill Of Exchange
DRAWER: Bartolome Picornell
DRAWEE: Firm Of Hyndman, Tavera And Ventura
PAYEE: PNB
-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 quintal, having,
in turn, drawn a bill of exchange. This
instrument was delivered to the branch of the
Philippine National Bank (PNB) in Cebu,
together with the invoice and bill of lading of
the tobacco, which was shipped in the boat
Don Ildefonso, on 27 February 1920,
consigned to Hyndman, Tavera & Ventura at
Manila.
-On 3 March 1920, PNB 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 PNB 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, which was deposited
in their warehouses, and wrote and cabled to
Picornell, notifying him that of the tobacco
received, there was a certain portion which was
of no use and was damaged. Through these
communications, therefore, Picornell learned that
Hyndman, Tavera & Ventura had in their
possession the tobacco.
-In view of the question raised by the said company
as to the quality of the aforesaid tobacco, more
correspondence was exchanged between the
company and Picornell. Picornell requested PNB
to extend the time for payment of the bill for
P39,529,83 against Messrs. Hyndman, Tavera &
Ventura of Manila for 30 days. PNB granted the
request of Picornell; wherefore Hyndman, Tavera
& Ventura reaccepted the bill in the terms:
"Accepted for thirty days. Due May 2d, 1920.
Hyndman, Tavera & Ventura, by (Sgd.) J. Pardo
de Tavera, member of the firm." 2 May 1920,
arrived and the bill was not paid.
-On the 4th of the same month, Hyndman, Tavera &
Ventura sent a letter to PNB informing the latter
that it absolutely refuse to pay draft 2 for
P39,529.83, referring to 1,871,235 quintals of
Leaf Tobacco Barili, owing to noncompliance of
the contract by the drawer. PNB protested the
NEGO - Quevedo 77
Camille Umali
bill, took possession of the tobacco, and had it
appraised on the 12th of the same month, its
value having been fixed at P28,790.72. The bank
brought the action for the recovery of the value of
the bill of exchange, and about September 1921,
sold the tobacco, obtaining from the sale P6,708.
-In a decision rendered January 9, 1922, and
amended by an order of February 18th next, the
Court of First Instance of Manila sentenced the
defendants to pay solidarily to the plaintiff bank
the sum of P28, 790.72 with interest at the rte of
9 per centum per annum from May 3, 1921, and
costs; and the defendant Bartolome Picornell, to
pay said plaintiff the sum of P10,739.11 with
interest at 9 per centum per annum, all as
aforesaid, deducting the sum of P6, 708.82 from
such amounts to be paid by the defendants.
-This total sum which the defendants are required to
pay represents the value of a bill of exchange
drawn by Bartolome Picornell in favor of the
National Bank, plaintiff, against the firm of
Hyndman, Tavera & Ventura, now dissolved, its
only successor being the defendant Joaquin
Pardo de Tavera. The sum of P6,708.82, which
the trial court ordered deducted from the
value of the bill of exchange, is the proceeds
received by the bank from the sale of a part of
a certain quantity of tobacco shipped by
Picornell at Cebu to the Hyndman, Tavera &
Ventura company at Manila, the price of which,
together with his commission, was received by
him from the branch of the plaintiff bank in Cebu,
and in consideration whereof he drew the bill in
favor of the central office of said bank in Manila
and against the said Hyndman, Tavera & Ventura
company, the consignee of the tobacco.
-Joaquin Pardo de Tavera alleged that the bill in
question was without consideration and that
judgment should not have been rendered against
him. The appellant Picornell contended that it
should have been taken into account that he
merely acted as an agent of Hyndman, Tavera &
Ventura in all these transactions; that the tobacco
was not of inferior quality, as alleged by the said
company; that the condition "D/P" attached to the
transaction was not modified; that he had the
right to complain because the bank consented to
the said company taking possession of the
tobacco before the payment of the bill; that the
bank held the tobacco as a deposit; that the bank
was not authorized to sell the tobacco, said sale
not being allowed either by law or by the
circumstances; that he should not have been
ordered to pay the value of the bill without proof
that he was notified of its dishonor, as required
by section 89 of the Negotiable Instruments Law.
ISSUES

1. WON the bank is subject to the defense of partial
want of consideration.
2. WON Picornell is not liable on the instrument on
the theory that he is merely a commissioned
agent.
HELD
1. NO.
-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 drawee by acceptance becomes liable to the
payee or his indorsee, and also to the drawer
himself. But the drawer and acceptor are the
immediate parties to the consideration, and if the
acceptance be without consideration, the drawer
cannot recover of the acceptor. The payee holds
a different relation; he is a stranger to the
transaction between the drawer and the acceptor,
and is, therefore, in a legal sense a remote party.
In a suit by him against the acceptor, the
question as to the consideration between the
drawer and the acceptor cannot be inquired into.
The payee or holder gives value to the drawer,
and if he is ignorant of the equities between the
drawer and the acceptor, he is in the position of a
bona fide indorsee. Hence, it is no defense to a
suit against the acceptor of a draft which has
been discounted, and upon which money has
been advanced by the plaintiff, that the draft was
accepted for the accommodation of the drawer. .
. ."
2. NO.
NEGO - Quevedo 78
Camille Umali
-As to Bartolome Picornell, he warranted, as drawer
of the bill, that it would be accepted upon proper
presentment and paid in due course, and as it
was not paid, he became liable to the payment of
its value to the holder thereof, which is the
plaintiff bank. (Sec. 61, 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. His acts in
negotiating the bill constitute a different contract
from that made by his having purchased the
tobacco on behalf of Hyndman, Tavera &
Ventura. Furthermore, he cannot exempt himself
from responsibility by the fact of his having been
a mere agent of this company, BECAUSE
NOTHING TO THIS EFFECT WAS INDICATED
OR ADDED TO HIS SIGNATURE ON SIGNING
THE BILL. (Sec. 20, Negotiable Instruments
Law.)
-Concerning the notice to Picornell of the dishonor of
the bill, it appears from Exhibit C, which is the
protest for the non-payment thereof, that a copy
of such protest was sent by mail in good season
addressed to Bartolome Picornell, the
presumption, now conclusive, that the latter
received it (secs. 105, 106, Negotiable
Instruments Law), not having been rebutted, or at
least, contradicted. Upon the non-payment of the
bill by the drawee-acceptor, the bank had the
right of recourse, which it exercised, against the
drawer. (Sec. 84, Negotiable Instruments Law.)
-The drawee, the Hyndman, Tavera & Ventura
company, or its successors, J. Pardo de Tavera,
accepted the bill and is primarily liable for the
value of the negotiable instrument, while the
drawer, Bartolome Picornell, is secondarily liable.
However, no question has been raised about this
aspect of the responsibility of the defendants.

BANCO ATLANTICO V AUDITOR GENERAL
G.R. No. L-33549; Fernandez; Jan 31,1978
~mel~
FACTS
SUBJECT: Philippine Embassy check dated Oct 31,
1968 for US$10,109.10
DRAWER: Luis M. Gonzales, its ambassador and by
said Virginia Boncan as Finance Officer
DRAWEE: Philippine National Bank branch in New
York, U.S.A
PAYEE: Azucena Pace
INDORSEE: Banco Atlantico, a commercial Bank
doing business in Madrid
-Virginia Boncan, then the Finance Officer of the
Philippine Embassy in Madrid, Spain, negotiated
with Banco Atlantico a Philippine Embassy check
signed by Luis M. Gonzales, its ambassador and
by said Virginia Boncan as Finance Officer, dated
October 31, 1968 in the sum of US$10,109.10
payable to Azucena Pace and drawn against the
PNB branch in New York, U.S.A.
-The check was endorsed by Azucena Pace and
Virginia Bonca. The petitioner, without clearing
the check with the drawn bank in New York,
U.S.A., paid the full amount of US$10,109.10 to
Virginia Boncan; that on November 2, 1968,
Virginia Boncan negotiated by endorsement with
the petitioner another embassy check signed by
Luis M. Gonzales as ambassador and by her as
finance officer in the sum of US$35,000.75 dated
November 2, 1968 payable to Virginia Boncan
and drawn against the Philippine National Bank
branch in New York, U.S.A.; that the petitioner
paid the full amount of the check to Virginia
Boncan without clearing said check with the
drawn bank, that on November 5, 1968, Virginia
Boncan negotiated by endorsement with
petitioner another embassy check signed by
Ambassador Luis M. Gonzales and by Finance
Officer Virginia Boncan in the sum of
US$90,000.00 dated November 5, 1968 payable
to Virginia Boncan and drawn against the
Philippine National Bank in New York, U.S.A.;
that the petitioner paid the full amount of the
aforementioned check of US$90,000.00 to
Virginia Boncan without clearing said check with
the drawn bank;
-Upon presentment for acceptance and payment of
the aforementioned checks by Banco Atlantico
through its collecting bank in New York, U.S.A. to
the drawn bank, the Philippine National Bank
branch in U.S.A., said drawee bank dishonored
the checks by non-acceptance allegedly on the
ground that the drawer had ordered payments to
be stopped; that upon receipt of the notice of the
dishonor, the collecting bank of the petitioner in
New York, U.S.A. sent individual notices of
protest with respect to the checks in question to
the Philippine Embassy in Madrid, Spain and to
Virginia Boncan as endorser payee that Virginia
Boncan and the Philippine Embassy in Madrid,
NEGO - Quevedo 79
Camille Umali
Spain refused to pay the petitioner the amounts
of the aforementioned checks.
-Petitioner Banco Atlantico filed corresponding money
claim with the Auditor General. AUDITOR GENERAL:
denied the claim of the petitioner for the amounts of
the three checks in question, stating that the Embassy
never maintained any checking account with Banco
Atlantico at any time in the past. Only the individual
staff members of the Embassy, including Miss Virginia
Boncan, in their personal and private capacities,
maintained accounts with said bank. It also stated that
while the aforementioned checks of the Embassy may
have appeared valid, payment to Miss Boncan in her
capacity as endorser and payee of the checks without
clearing them first with the drawee bank is definitely
not in accordance with normal or ordinary banking
practice, especially so in this case where the drawee
bank was a foreign bank, and the amounts involved
were quite large. The normal procedure would have
been for the Banco Atlantico to clear the three cheeks
concerned with the drawee bank before paying Miss
Boncan. The lower court have gathered enough proof
that Miss Boncan had very special relations with the
employees and chiefs of the claimant bank's foreign
department. This personal relationship that existed
between Miss Boncan and said employees and
officers was one thing and ordinary banking
transactions were something else. Because of this
special relationship, the bank took a risk and
sacrificed normal banking procedures by cashing the
aforementioned checks without prior clearance from
the drawee bank.
-Further proof of the special relationship between
claimant bank and Miss Boncan was the leniency of
the bank towards her when it accepted for deposit to
Miss Boncan's dollar account an Embassy check for
US$75.00 payable to Mr. Antonio P. Villamor without
his indorsement. Such leniency on the part of the
bank could even lead to the suspicion that there was
collusion between the bank and Miss Boncan A
photocopy of this check is enclose for ease of
reference. In the particular case of the check for
US$90,000.00 we can demonstrate that claimant
bank likewise has no ewe at all. Section 61 of the
Negotiable instruments Law can only be availed of by
holders in due course and Banco Atlantico cannot be
considered as one
ISSUE
WON the Philippine Embassy in Madrid is liable, as
drawer of the 3 checks in question
HELD: NO
Ratio: It is apparent that the said three (3) checks
were fraudulently altered by Virginia Boncan as
to their amounts and, therefore, wholly
inoperative. No right of payment thereof against

any party thereto could have been acquired by
the petitioner.
Reasoning: The petitioner paid the amounts of the
three (3) checks in question to Virginia Boncan
without previously clearing the said checks with the
drawee bank, Philippine National Bank, New York.
This is contrary to normal or ordinary banking practice
specially so where the drawee bank is a foreign bank
and the amounts involved were large. The drawer of
the aforementioned checks was not even a client of
the petitioner. There is a showing that Virginia Boncan
enjoyed special treatment from the employees and
chiefs of the petitioner's foreign department. It was
probably because of this special relationship that the
petitioner, in of the elementary principle that should
attend banking transactions, cashed the three (3)
checks in question without prior clearances from the
drawee bank.
-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 on 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. 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 infirmity in the instrument or defect in the title
of the person negotiating it.
-All four conditions enumerated under this section
must concur before a holder can be considered as a
holder in due course. The absence or failure to
McCORNACK V CENTARL STATE BANK
211 N.W. 542, 53 A.L.R. 1297
~eva~
FACTS
DRAWER: Peter McCornack
DRAWEE: Central State Bank
PAYEE: C.R. Kutsman (fictitious person)
-(July 1920) Halverson gained the confidence of
McCornack and represented to him that he had a
client who wished to borrow money to be secured
by mortgage on land, and so McCornack
consented to make the loan. Halverson delivered
to McCornack a note purporting to be signed by
CR Kutsman and secured by a mortgage.
McCornack signed a check for $1,005.50 which
he gave to Halverson. Halverson indorsed the
name Kutsman and his own name on the check
and deposited it in his account. The check was
paid on presentation to Central State Bank and
the amount charged to the account of
McCornack.
-(1924) It was discovered that the note and the
mortgage were forged instruments and no
Kutsman in fact existed. Halverson, by like
NEGO - Quevedo 80
Camille Umali
comply with any of the conditions set forth under this
section will make one's title to the instrument
defective.
-The check for US$90,000.00 was a demand note.
When Miss Boncan the payee of this check,
negotiated the same by depositing it in her account, at
the game time informing the bank in writing (copy of
her letter is enclosed for ease of reference) that it be
not presented for collection until a later date, Banco
Atlantico through its agent teller or cashier should
have been put on guard that there was something
wrong with the check. The fact that the amount
involved was quite big and it was the payee herself
who made the request that the same not be
presented for collection until a fixed date in the future
was proof of a glaring infirmity or defect in the
instrument. It loudly proclaims, "Take me at your risk."
The interest of the payee was the immediate
punishment of the check of which she was the
beneficiary and not the deferment of the presentment
for collection of the same to the drawee bank. This
being the case, Banco Atlantico was not a holder in
due course as defined by Sec. 52 of NIL, because it
was obvious that it had knowledge of the infirmity or
defect of the cheek. The fact that the check was
honored by claimant bank was proof not only of their
gross negligence but a further manifestation of the
special treatment they were according Miss Boncan.
Disposition Decision of Auditor General denying
claim of petitioner for payment of the three
checks is affirmed
fraudulent means, obtained other checks from
McCornack. McCornack sued to recover, as for a
conversion, the amount paid by the bank and
charged against its (McCornack) account. Court
decided in favor of McCornack. Bank now
appeals.
-Defenses of drawee bank:
1. check paid to person to whom McCornack intended
payment to be made
2. the bank was not guilty of negligence
3. McCornack was negligent in making the check in
that he failed to ascertain that the payee was a
fictitious person
4. that by accepting without objection the statement of
their bank account with the check in question
cancelled and charged against it, there was
account stated, and the plaintiffs were thereby
estopped to claim that the check was improperly
paid
5. by failing to notify the bank within 6 months after
receiving such statement of the alleged

irregularity in the payment of the check, the claim
was barred by the statute of limitations
6. McCornacks were guilty of negligence in not
sooner notifying the bank of the alleged error in
the payment of the check, for the reason that
they knew, or should have known, that Halverson
was receiving the proceeds of checks turned over
to him under similar circumstances, and so
received the proceeds of the check in question,
thereby causing loss to the bank.
ISSUE
WON Central State Bank (drawee) is liable.
HELD: YES.
a. A check payable to the order of a fictitious person
with the knowledge of the drawer is payable to
bearer. But where the fact that it is payable to a
fictitious person is unknown to the drawer, that
bank upon which it is drawn, or paying it, is in no
different position than where it pays a check
payable to a real party upon a forged instrument.
McCornack did not know that the payee was
fictitious; the check was not, therefore, payable to
bearer, and the bank cannot escape liability on
that ground.
b. Where an impostor represents himself to be
another, whether the person whom he so
impersonates be a real or fictitious person, and
procures a check payable to the order of such
person, the bank is protected in paying the check
to the impostor, because it made payment to the
person to whom the drawer intended it should be
made, no matter what name he assumed. But
where one represents himself to be the agent of
a ficititious person and fraudulently procures the
delivery to himself of a check payable to the
order of such fictitious person as payee, and
secures the payment of the check to himself by
indorsing the name of the fictitious payee upon it,
in the absence of estoppel or negligence on the
part of the drawer, the loss must be borne by the
drawee and not by the drawer.
c. The bank in paying the check was bound to know
at its own risk that the indorsements by which the
holder of the check claimed title were genuine. Its
liability for payment not in accordance with the
direction of the drawer did not depend upon
negligence, but upon a violation of its implied
contract with its depositor. The question WON
the bank was negligent is immaterial upon the
NEGO - Quevedo 81
Camille Umali
naked and primary question of its liability for
having paid a check upon a forged indorsement.
Here, the check was paid by the bank without
inquiry as to the indorsement of Kutsman.
d. McCornack was not negligent. There is no showing
that anything had come to his knowledge
respecting Halverson to put him upon inquiry as
to his honesty. Moreover, McCornacks failure to
ascertain that the payee of his check was a
fictitious person did not induce or contribute to
the payment of the check by the bank. The
drawer of the check, who, through failure to
discover the fraud that is being practiced upon
him, makes a check payable to the order of a
fictitious payee in ignorance of that fact, stands in
the same position with reference to the bank
upon which it is drawn as where his check is
payable to the order of a real person. His
negligence in so drawing the check is immaterial
unless directly and proximately affects the
conduct of the bank in paying the check.
e. On Sec.9521 of Code 1924 (Sec.61 of NIL):
This provision would seem to be, not for the benefit of
the drawee, nor designed to relieve the drawee of
the duty to pay out the drawers money in
accordance with his order, but for the protection
of holders of the paper in case the drawee
refuses to pay. It provides, not only that the
drawer admits the existence of the payee and
his capacity to indorse, but that he engages
that upon dishonor and the necessary
proceedings thereon he will pay the amount
to the holder or any subsequent indorser who
may be compelled to pay it. There is here no
engagement to pay the amount to a drawee
who has honored the check.
-When the payee is a fictitious person and this is
unknown to the drawer the statute does not have
the effect to bind the drawer by an indorsement
of the name of the payee by one to whom he did
not intend payment to be made.
-If the drawee demanded a genuine indorsement, as it
was its duty to do before honoring the check,
since there could be no such thing in the case of
a fictitious payee, the check would not have been
honored. In such case, an innocent holder, upon
taking proper steps, would have been protected
by Sec.9521. The purpose of that section was to
protect the innocent holder of dishonored paper-
not the drawee who paid it in violation of duty.

LOZANO V MARTINEZ
146 SCRA 323; Yap; Dec. 18, 1986
~jat~
FACTS
-Petitions arose from cases prosecuted under Batas
Pambansa Blg.22 (BP 22) or the Bouncing
Checks Law. Defendants in these cases moved
to quash the informations filed against them on
ground that BP 22 is unconstitutional.
-Arguments against the constitutionality of BP 22:
1. it offends the constitutional provision on non-
imprisonment for debt
2. it impairs freedom of contract
3. it contravenes the equal protection clause
4. it is an undue delegation of legislative and
executive powers
5. during its passage, the interim Batasan violated the
constitutional provision prohibiting amendments
rd
to a bill on 3 reading
BACKGROUND ON BP 22:
BP 22 punishes
a. Anyone who makes/draws & issues any check on
account or for value, knowing at the time of issue that
he does not have sufficient funds in or credit with the
drawee bank for the payment of said check, in full,
upon presentment, which check is subsequently
dishonored by the drawee bank for insufficiency of
funds/credit or would have been dishonored for the
same reason had not the drawer, w/o any valid
reason, ordered the bank to stop payment.
b. Anyone who has sufficient funds in or credit with
bank when he makes/draws & issues a check but fails
to keep sufficient funds or maintain a credit to cover
full amount if presented w/in 90 days from date
appearing on check resulting to the bank dishonoring
the check.
Penalty: imprisonment of not less than 30 days nor
more than 1 yr or a fine of not less than the amt of the
check nor more than double said amount, but it
should not exceed P200k or both fine & imprisonment
at courts discretion.
Essential element: knowledge of the insufficiency of
funds.
Prima facie presumption of knowledge: when check is
refused by bank due to insufficient funds/credit when
presented within 90 days from date of the check.
Presumption will not arise if within 5 days from receipt
of notice of dishonor, the maker/drawer makes
arrangements for payment of check by bank/pays the
holder the amount of the check.
Prima facie proof of dishonor: introduction as
evidence of unpaid and dishonored check with
drawee banks refusal to pay stamped/written thereon
or attached thereto, giving the reason thereof.
Purpose of the statute: stop/curb practice of issuing
worthless checks due to the injury it causes to the
public interests.
History of provisions covering bouncing checks:
a. Penal Code of Spain Art. 335 penalized act of
defrauding another by falsely pretending to possess
NEGO - Quevedo 82
Camille Umali
any power, influence, qualification, property, credit,
agency or business or by means of similar deceit.
b. 1926, Phil Legislature amended PC Art. 335
penalizing anyone who: 1) issues a check in payment
of a debt or for other valuable consideration knowing
at the time of its issuance that he does not have
sufficient funds in the bank to cover its amount; 2)
maliciously signs check differently from his authentic
signature as registered at the bank in order that the
latter would dishonor it; 3) issues a postdated check &
at the date set for its payment doesnt have sufficient
deposit to cover the same.
c. RPC Art. 315, Par. 2(d) punishes anyone who
postdates a check or issues a check in payment
of an obligation knowing that at the time he had
no/insufficient funds in the bank without
informing the payee of such circumstances.
However, this provision did not cover checks issued
to pay pre-existing obligations since the deceit that
causes the defrauding must be prior to or
simultaneous with the commission of the fraud. In this
case, payee already parted with his money/property
before the check was issued thus hes not defrauded
by means of a prior or simultaneous deceit. Drawer
on the other hand did not derive any material benefit
in return for checks issuance.
d. Aiming to cover checks issued to pay pre-existing
obligations, RA 4885 amended Art. 315 2(d) by
removing the requirement of drawers knowledge of
insufficiency of funds and by giving the drawer 3 days
from receipt of notice of dishonor to deposit the
amount necessary to cover the check. Failure to do
so would be a prima facie evidence of deceit. But SC
ruled in People vs. Sabio that the amended provision
still did not cover pre-existing obligations.
e. BP 22 was enacted to cover checks issued to
pay pre-existing debts, which statistically constituted
the greater bulk of dishonored checks.
ISSUE
WON BP 22 is constitutional
HELD: YES.
BP 22 is clear and broad enough to cover all kinds of
checks whether present or postdated, or whether
issued in payment of a pre-existing obligation or
given in mutual or simultaneous exchange for
something of value.
WON it violates the constitutional prohibition on non-
imprisonment for debt
-NO. Those who assail the statute claim that the
felony is consummated only upon the
dishonor/non-payment of check. That it is really a
bad debt law rather than a bad check law. It
punishes the non-payment of the check & not the
act of issuing it. It is a veiled device to coerce

payment of a debt under the threat of penal
sanction.
-BP 22 punishes making & issuing a worthless check
and not the non-payment of an obligation. It does not
intend to coerce a debtor to pay his debt. Its
punished because of its deleterious effects on the
public interest. It punishes the act not as an offense
against property, but an offense against public order.
-Although the legislature cannot penalize a person for
non-payment of a debt ex-contractu, it can proscribe
certain acts deemed pernicious & inimical to public
welfare. It is within the police power of the state
(making & issuing of worthless checks is a public
nuisance to be abated by the imposition of penal
sanctions). Court cannot question its wisdom. Its
sufficient that there be a reasonable nexus between
the means & end. A check is a convenient substitute
for currency in commercial & financial transactions
due to the assurance that it will be paid upon
presentation. Central Bank reports show that 1/3 of
the entire money supply of the country consists of
peso demand deposits (funds against w/c commercial
papers like checks are drawn). Considering these
facts and that there are approximately 50-80 million
pesos worth of bouncing checks per day, we can see
that the State has a legitimate purpose in protecting
checks. Any practice tending to destroy the
confidence in checks should be deterred since it
would injure trade & commerce, banking system, the
nations economy & eventually the welfare of the
society & the public interest. It would be mistaken
charity of judgment to place this felony alongside a
felony committed by an honest man unable to pay his
debts.
WON BP 22 impairs freedom of contract.
-NO. The Constitution only protects the freedom to
enter into LAWFUL contracts & not those which
NEGO - Quevedo 83
Camille Umali
contravene public policy. Besides, a check is not a
contract. Its a commercial instrument used as a
substitute for money forming part of the banking
system & thus not entirely free from states regulatory
power.
WON BP 22 denies equal protection of the laws or is
discriminatory since it penalizes the drawer of the
check but not the payee.
-NO. It would be absurd to punish the person
swindled. No sense in talking about swindleds
indispensable participation in the commission of the
crime. Classification per se is valid as long as it is not
unreasonable/arbitrary.
WON BP 22 constitutes undue/improper delegation of
legislative/executive powers since completion of act is
dependent on the will of the payee.
-NO. What cannot be delegated is the power to
legislate, or the power to make laws, which means, as
applied to the present case, the power to define the
offense sought to be punished and to prescribe the
penalty. The power to define the crime and prescribe
the penalty therefore has not been in any manner
delegated to the payee. Nor is the power to enforce
the statute delegated to the offended party.
WON BP 22 violates Art. VII Sec. 9(2) of the 1973
Consti w/c prohibits the introduction of the
rd
amendments to a bill during the 3 reading.
-NO. Although there was confusion among Batasan
Members regarding this matter, a Special Committee
investigated the matter & found that there were
actually no amendments introduced during the 3rd
reading. Amendment in question was made during the
2nd reading.

PEOPLE V NITAFAN
G.R. No. 75954; Oct 22, 1992; 215 SCRA 79
~kooky~
FACTS
SUBJECT: memorandum check dated Feb 9, 1985
DRAWER: K.T. Lim alias Mariano Lim
DRAWEE: Philipppine Trust Company
PAYEE: Fatima Cortez Sasaki
-K.T. Lim was charged with violation of BP 22. for the
check he issued to Sasaki for P143,000 which was
dishonored by drawee for insufficiency of funds.
Despite notice of dishonor, Lim did not pay within 5
days.
-Failing in his argument that BP 22 is unconstitutional,
Lim now argues that the memorandum check he
issued is in the nature of a PN, hence, outside the
purview of the statute.
ISSUE
WON a memorandum check is within the coverage of
BP 22
HELD: YES
-A memorandum check is in the form of an ordinary
check, with the word "memorandum", "memo" or
"mem" written across its face, signifying that the
maker or drawer engages to pay the bona fide holder
absolutely, without any condition concerning its
presentment. Such a check is an evidence of debt
against the drawer, and although may not be intended
to be presented, has the same effect as an ordinary
check, and if passed to the third person, will be valid
NEGO - Quevedo 84
Camille Umali
in his hands like any other check. It is still drawn on a
bank and should be distinguished from PN. In the
business community a PN has less impact and
persuadability than a check.
-a memorandum check comes within Sec 185 NIL
which defines a check as "a bill of exchange drawn on
a bank payable on demand." It must therefore fall
within the ambit of BP 22 which does not distinguish
but merely provides that "[a]ny person who makes or
draws and issues any check -A memorandum
check, upon presentment, is generally accepted by
the bank. It does not matter for whatever purpose it
was issued, for the mere act of issuing a worthless
check is malum prohibitum.
-a memorandum check may carry with it the
understanding that it is not to be presented at the
bank but will be redeemed by the maker when the
loan falls due. However, with BP 22, this may no
longer prevail to exempt it from penal sanction
imposed by the law. To require that the agreement
surrounding the issuance of check be first looked into
and thereafter exempt such issuance from the
punitive provision of BP 22 on the basis of such
agreement or understanding would frustrate the very
purpose for which the law was enacted --to stem the
proliferation of unfunded checks.
Disposition Petition granted. RTC ordered to
proceed.

WONG V COURT OF APPEALS, People
351 SCRA 100; Quisumbing; Feb 2, 2001
~maia~
FACTS
-Wong was an agent of Limtong Press. Inc. (LPI), a
manufacturer of calendars. LPI would print sample
calendars, then give them to agents to present to
customers. The agents would get the purchase orders
of customers and forward them to LPI. After printing
the calendars, LPI would ship the calendars directly to
the customers. Thereafter, the agents would come
around to collect the payments. Wong, however, had
a history of unremitted collections, thus his customers
were required to issue postdated checks before LPI
would accept their purchase orders.
-In December 1985, Wong issued 6 postdated checks
totaling P18,025.00. These checks were initially
intended to guarantee the calendar orders of
customers who failed to issue post-dated checks.
However, LPI refused to accept the checks as
guarantees. Instead, the parties agreed to apply the
checks to the payment of Wongs unremitted
collections for 1984 amounting to P18,077.07. LPI
waived the P52.07 difference.
-Before the maturity of the checks, Wong told LPI not
to deposit the checks and promised to replace them
within 30 days. However, Wong reneged on his
promise. On June 5, 1986, LPI deposited the checks
with RCBC. The checks were returned for the reason
account closed.
-LPI through counsel notified Wong of the dishonor.
Wong failed to make arrangements for payment within
5 banking days. Thus, Wong was charged with
violation of BP 22 (bouncing checks law)
-According to Wong, he issued the checks not as
payment for any obligation, but to guarantee the
orders of his customers. Although these customers
had already paid their respective orders, Wong
claimed LPI did not return the said checks to him.
-RTC: guilty. CA: guilty
ISSUE
WON Wong should be convicted considering that the
checks were issued as guaranty and the
accounts that said checks supposedly
guaranteed have already been paid by the
customers
HELD: YES
-Wong contends that LPI is not a "holder for value"
considering that the checks were deposited by LPI
after the customers already paid their orders. Instead
of depositing the checks, LPI should have returned
the checks to him.
-the lowers courts found that although initially
intended to be used as guarantee for the purchase
orders of customers, the checks were eventually used
to settle the remaining obligations of Wong with LPI.
Besides, in Llamado v. Court of Appeals, it was held
that [t]o determine the reason for which checks are
issued, or the terms and conditions for their issuance,
NEGO - Quevedo 85
Camille Umali
will greatly erode the faith the public reposes in the
stability and commercial value of checks as currency
substitutes, and bring about havoc in trade and in
banking communities. So what the law punishes is the
issuance of a bouncing check and not the purpose for
which it was issued nor the terms and conditions
relating to its issuance. The mere act of issuing a
worthless check is malum prohibitum.
-2 ways of violating BP 22: (1) by making or drawing
and issuing a check to apply on account or for value
knowing at the time of issue that the check is not
sufficiently funded; and (2) by having sufficient funds
in or credit with the drawee bank at the time of issue
but failing to keep sufficient funds therein or credit
with said bank to cover the full amount of the check
when presented to the drawee bank within a period of
ninety (90) days.
-The elements of BP 22 under the first situation are:
(1) The making, drawing and issuance of any check to
apply for account or for value; (2) The knowledge of
the maker, drawer, or issuer that at the time of issue
he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full
upon its presentment; and (3) The subsequent
dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the
same reason had not the drawer, without any valid
cause, ordered the bank to stop payment.
-Wong contends that the 1st element does not exist
because the checks were not issued to apply for
account or for value since the checks were issued as
guarantee and the obligations they were supposed to
guarantee were already paid. This argument has no
legal basis, for what BP 22 punishes is the issuance
of a bouncing check and not the purpose for which it
was issued nor the terms and conditions relating to its
issuance.
-As to the 2nd element, BP 22 creates a presumption
juris tantum that the 2nd element prima facie exists
when the 1st and 3rd elements of the offense are
present. Thus, the drawers knowledge is presumed
from the dishonor. Wong avers that since LPI
deposited the checks 157 days after the Dec 30, 1985
maturity date, the presumption of knowledge of lack of
2
funds under Sec2 of BP 22 should not apply to him
-However, an essential element of the offense is
knowledge on the part of the drawer of the
insufficiency of his funds in or credit with the
bank. Since this involves a state of mind difficult
2 Evidence of knowledge of insufficient funds. -The making, drawing and
issuance of a check payment of which is refused by the drawee because
of insufficient funds in or credit with such bank, when presented within
ninety (90) days from the date of the check, shall be prima facie evidence
of knowledge of such insufficiency of funds or credit unless such maker or
drawer pays the holder thereof the amount due thereon, or makes
arrangements for payment in full by the drawee of such check within five
(5) banking days after receiving notice that such check has not been paid
by the drawee.

to establish, the statute itself creates a prima
facie presumption Nowhere in said provision
does the law require a maker to maintain funds in
his bank account for only 90 days. Rather, the
clear import of the law is to establish a prima
facie presumption of knowledge of such
insufficiency of funds under the ff conditions: (1)
presentment within 90 days from date of the
check, and (2) dishonor of check and failure of
maker to make arrangements for payment in full
within 5 days after notice
-That the check must be deposited within 90 days is
simply one of the conditions for the prima facie
presumption of knowledge of lack of funds to
arise. It is not an element of the offense nor does
it discharge Wong from his duty to maintain
sufficient funds in the account
-Under Section 186 of NIL: a check must be
presented for payment within a reasonable time
after its issue or the drawer will be discharged
LIM V PEOPLE
G.R. No. 143231; Davide; Oct 26, 2001
~da~
FACTS
SUBJECT: Checks
DRAWER: ALBERTO LIM
DRAWEE: Metrobank
PAYEE: ROBERT LU
-Sometime in May 1992, ALBERTO issued to private
complainant Robert Lu for purpose of
rediscounting, sixty-four (64) Metrobank checks,
including the 12 checks subject of the
informations filed in these cases. Upon
respective dates of maturity, each of the 12
checks were deposited by ROBERT at the
Roosevelt Branch of the United Coconut Planters
Bank, which were all dishonored by the drawee
bank for the reason "Account Closed."
-ROBERT informed ALBERTO of the dishonor and
demanded payment but despite receipt of notice
of such dishonor ALBERTO failed pay.ROBERT
thru his lawyer sent a demand letter dated 29
December 1992 to ALBERTO. ALBERTO
received the demand letter on 9 January 1993.
For failure to settle his account within the seven
days grace period provided in the demand letter,
ALBERTO caused the filing of the 12
informations subject of the instant case.
-ALBERTO alleged that sometime in 1989, Sarangani
Commercial, Inc. (hereafter Sarangani Inc.)
issued to ROBERT seven checks as payment for
its obligation to the latter in the amount of
P1,600,000.
-ALBERTO affixed his signature , as guarantor. When
the said seven checks bounced, ALBERTO
issued more than three hundred checks,
NEGO - Quevedo 86
Camille Umali
from liability thereon to the extent of the loss
caused by the delay. By current banking
practice, a check becomes stale after more than
6 months or 180 days. LPI deposited the checks
157 days after the date of the check. Hence said
checks are not stale. Only the presumption of
knowledge of insufficiency of funds was lost, but
such knowledge could still be proven by direct or
circumstantial evidence. Here, LPI did not deposit
the checks because of the reassurance of Wong
that he would issue new checks. Upon his failure
to do so, LPI was constrained to deposit the said
checks. After the checks were dishonored, Wong
was duly notified of such fact but failed to make
arrangements for full payment within 5 banking
days thereof. There is sufficient evidence that
Wong had knowledge of the insufficiency of his
funds in or credit with the drawee bank at the
time of issuance of the checks.
including the twelve checks which were the
subject of the present case, as replacements.
-that ROBERT had already received the total amount
of P4,021,000 from the proceeds of the
replacements checks, which amount is more than
the total obligation of Sarangani, Inc. which was
accommodated by him.
-It is the contention of ALBERTO that with the full
payment of the accommodated obligation, the
twelve checks subject of the present case have
no valuable consideration.
-Trial court rendered a decision finding ALBERTO
guilty of violation of B.P. Blg. 22 in each of the
twelve cases. ALBERTO filed a motion for
reconsideration which was denied, Court of
Appeals affirmed in toto the decision of the trial
court.
ISSUE
WON ALBERTO is not guilty of violating BP22
(as the subject checks lack valuable consideration)
HELD: NO.
-Upon issuance of the said checks, it is presumed, in
the absence of evidence to the contrary, that the
same was issued for valuable consideration.
-BP Blg. 22 punishes the issuance of a bouncing
check. It is not the non-payment of an obligation
which the law punishes, but the act of making
and issuing a check that is dishonored upon
presentment for payment. The purpose for which
it was issued and the terms and conditions
relating to its issuance are immaterial. What is
primordial is that such issued checks were

worthless and the fact of its worthlessness is
known to appellant at the time of their issuance, a
required element under B.P. Blg. 22. This is
because the mere act of issuing a worthless
check is malum prohibitum
-The law enumerates the elements of B.P. Blg. 22 to
be (1) the making, drawing and issuance of any
check to apply for account or for value; (2) the
knowledge of the maker, drawer, or issuer that at
the time of issue he does not have sufficient
funds in or credit with the drawee bank for the
payment of the check in full upon its
presentment; and (3) the subsequent dishonor of
the check by the drawee bank for insufficiency of
funds or credit or dishonor for the same reason
had not the drawer, without any valid cause,
ordered the bank to stop payment.
-The issuance of the twelve checks and its
subsequent dishonor were admitted by
ALBERTO. His defense rests solely on the
payment of the obligation by Sarangani, Inc.
including its interests, which was allegedly
accommodated by him. ALBERTO insists that as
a guarantor, he merely issued the twelve checks
to replace the bad checks that were previously
issued by Sarangani, Inc., and considering that
the total amount of the checks encashed by
ROBERT have exceeded the amount of the bad
checks including the interest, then the twelve
checks already lack valuable consideration.
-The seven(7) checks issued by Sarangani, Inc. were
all dated and dishonored in September 1989. The
twelve (12) checks including the other fifty-two
(52) checks were all dated November 1992,
hence the same cannot be a replacement of the
bad checks which were dishonored as far back
as three years ago.Even the corresponding
amount of the checks negates said conclusion.
The total amount of the seven (7) checks,
NEGO - Quevedo 87
Camille Umali
representing the obligations of Sarangani, Inc., is
only P1,600,000, while the sum total of the twelve
(12) checks and the remaining fifty-two checks is
P7,455,000. If we add the P7,455,000 to the
value of the more than three hundred checks,
which ALBERTO alleged to have been issued
also in payment of the said obligation then the
total amount of all the replacement checks will be
P111,476,000.
-Moreover, records show that the twelve(12) checks
and the other fifty-two (52) checks were issued
sometime May 1992 and all postdated 1992,
whereas the 330 checks which were submitted to
prove the fact of payment were all encashed
before the issuance of the said checks. Thus, if
full payment was made as early as July 22, 1991,
the date of the last check of the 330 checks, why
would ALBERTO issue the twelve (12) checks
and the fifty-two (52) checks, if not for a
consideration other than to answer for an
obligation which was already paid. Hence, the
330 checks submitted by the defense did not
prove that the twelve checks were not issued for
valuable consideration. On the contrary, it
supported the version of the prosecution that the
checks were issued for rediscounting and not as
replacements for the bad checks of Sarangani,
Inc., as claimed by ALBERTO.
-Further, if indeed it were true as claimed by
ALBERTO that the indebtedness covered by the
checks sued upon has been paid, the petitioner
should have redeemed or taken the checks back
in the ordinary course of business. But the same
checks remained in the possession of the
complainant who asked for the satisfaction of the
obligations involved when said checks became
due, without the petitioner heeding the demand
for him to redeem his checks which bounced.

MERIZ V PEOPLE
Vitug; 368 SCRA 524 (2001)
~bry_sj~
FACTS
SUBJECT: 4 checks
DRAWER/ISSUER: Celia Meriz
DRAWEE: Pilipinas Bank
PAYEE: Amelia SANTOS
-Petitioner MERIZ was engaged in the business of
manufacturing garments for export using the
name and style of "Hi-Marc Needlecraft." During
the course of her business undertakings, she
obtained a number of loans from Amelia Santos
(Santos) and Summit Financing Corporation.
Sometime in 1988, petitioner issued in favor of
Santos four Pilipinas Bank Checks in the
aggregate amount of P188,400.00. Santos
deposited the checks with her bank. The checks,
however, were later returned, with the notation
"Insufficient Funds" stamped on the dorsal
portion of each check, by the depositary bank.
-Santos, through her counsel, sent a telegram to
petitioner, warning her that criminal action will be
instituted unless the obligation was paid in cash.
MERIZ however was not able to do so due to
difficulties encountered in her business. Santos
filed a complaint against Meriz, which resulted in
the filing of several informations charging her with
violation of the Bouncing Checks Law. Trial
ensured and Meriz was convicted.
-Petitioner Meriz in the instant appeal, would have it
that there was an absolute lack of consideration
for the subject checks which were issued only as
a condition for the grant of loan in her favor and
that the requisite element of notice was not
complied with.
ISSUE
WON absolute lack of consideration for the issuance
of checks is a valid defense in a prosecution for
violation of BP 22
HELD: NO.
Ratio The cause or reason for the issuance of the
check is inconsequential in determining criminal
culpability under BP 22
-The essential elements of the offense penalized
under BP 22 are
(1) making, drawing & issuance of any check to apply
to account or for value;
(2) the knowledge of the maker, drawer or issuer that
at the time of issue he does not have sufficient
funds in or credit with the drawee bank for the
payment of such check in full upon its
presentment; and
(3) subsequent dishonor of the check by the drawee
bank for insufficiency of funds or credit or
dishonor for the same reason had not the drawer,
NEGO - Quevedo 88
Camille Umali
without any valid cause, ordered the bank to stop
payment."
-The Court has since said that a "check issued as
an evidence of debt, although not intended for
encashment, has the same effect like any
other check" and must thus be held to be
"within the contemplation of BP 22." Once a
check is presented for payment, the drawee bank
gives it the usual course whether issued in
payment of an obligation or just as a guaranty of
an obligation. BP 22 does not appear to concern
itself with what might actually be envisioned by
the parties, its primordial intention being to
instead ensure the stability and commercial value
of checks as being virtual substitutes for
currency. It is a policy that can easily be eroded if
one has yet to determine the reason for which
checks are issued, or the terms and conditions
for their issuance, before an appropriate
application of the legislative enactment can be
made. The gravamen of the offense under BP
22 is the act of making or issuing a worthless
check or a check that is dishonored upon
presentment for payment. The act effectively
declares the offense to be one of malum
prohibitum. The only valid query then is
whether the law has been breached, i.e., by
the mere act of issuing a bad check, without
so much regard as to the criminal intent of
the issuer.
-The element of "knowledge" involves a state of mind
that obviously would be difficult to establish;
hence, the statute itself creates a prima facie
presumption of knowledge on the insufficiency of
funds or credit coincidental with the attendance of
the two other elements.
-The prima facie presumption that the drawer has
knowledge of the insufficiency of funds or credit
at the time of the issuance, or on the
presentment for payment, of the check might be
rebutted by payment of the value of the check
either by the drawer or by the drawee bank within
five banking days from notice of the dishonor
given to the drawer. The payment could thus
be a complete defense that would lie
regardless of the strength of the evidence
offered by the prosecution. It must be
presupposed then that the issuer receives a
notice of dishonor and that, within five days from
receipt thereof, he would have failed to pay the
amount of the check or to make arrangement for
its payment.
NOTE: Court deleted prison sentence,
imposed a fine of P94,200 against Meriz

LAGMAN V PEOPLE
371 SCRA 679; Kapunan; Dec 7, 2001 ~kitik~
FACTS
-This is a petition for review of the CA decision of CA
which affirmed the RTC decision finding accused-
petitioner guilty of six counts of violation of BP 22.
-Accused Gloria Elena Lagman, purchased from the
private complainant Delia Almarines, various pieces
of jewelry worth P700,250.00 from October, 1985 to
December, 1985. As guarantee for the payment of -The records of the case belie accused-petitioners
the jewelries, the accused issued to the private
complainant several checks. First, she issued twenty
nine (29) postdated checks in the total sum of
P591,916.00. All the checks bounced either for
insufficiency of funds or for the reason that the
account of the accused-drawer had been closed. As
replacement for said checks she issued eight
checks. Of the eight (8) checks, only two became
good, more particularly, the April 22, 1991 check and
the May 2, 1991 check. The other six (6) other
checks were dishonored. The reason for the
dishonor of the checks, is: IF or insufficiency of
funds.
-Despite demand, the accused failed to make good or
pay for the value of the six (6) checks which had
been dishonored. Accused-petitioner was charged
with thirty-five counts for violation of B.P. 22. She -Based on the records, therefore, the six checks were
was found guilty for issuing six of the last set of
checks issued.
-Accused-petitioner claims that the six checks subject of
the present cases were issued as mere guarantees
in replacement of several bounced checks she had
previously issued, and private complainant was
sufficiently warned that these checks were not to be
deposited or encashed. Relying on the case of
Magno vs. Court of Appeals, accused-petitioner
maintains that she cannot be held liable because
she expressly and repeatedly informed private -The case of Magno v. Court of Appeals relied upon by
complainant that she would not be able to maintain
sufficient funds in or credit with the drawee banks for
the payment of the checks due to financial
constraints.
ISSUE
WON the fact that the subject checks were not intended
as payments but as mere guarantees of petitioners
obligations exempt her from liability
HELD: NO
-The act sought to be prevented by BP 22, or the
Bouncing Checks Law, is the act of making and
issuing a check with the knowledge that at the time
of issue, the drawer does not have sufficient funds in
or credit with the bank for payment and the check
was subsequently dishonored upon presentment.
What the law punishes is the issuance of a worthless
check and not the purpose for which such check was -In the case under consideration, accused-petitioner
issued nor the terms or conditions relating to its
issuance. Accused-petitioners contention that the
checks were merely issued to guarantee payment of
her obligation to private complainant is not
NEGO - Quevedo 89
Camille Umali
persuasive. As held in the case of Que v. People of
the Philippines, B.P. Blg. 22 applies even in cases
where dishonored checks are issued merely in the
form of a deposit or guarantee and does not make
any distinction as to whether the checks within its
contemplation are issued in payment of an obligation
or merely to guarantee the said obligation.
allegation that the checks were merely issued as
guarantees. Evidence shows that the six checks
subject of the present appeal were issued by herein
accused-petitioner to private respondent in the sala
of Judge Domingo Garcia of the Pasig RTC, Branch
157 in settlement of the 29 cases pending before the
said court which arose from the issuance of 29
bounced checks. When these six replacement
checks also bounced, they became the subject of six
criminal cases which were filed before Judge
Trampe. Later on, these six cases were consolidated
with the 29 cases before Judge Garcia. During trial,
counsels for herein accused-petitioner and private
respondent were in agreement that these six checks
were issued in settlement of some of the pending 29
cases.
issued in partial settlement of the 29 B.P. Blg. 22
cases pending before Judge Garcia. We find nothing
in the records that would show that these six checks
were issued as mere guarantees. Accused-petitioner
herself acknowledged that these eight (8) postdated
checks were issued as replacements of the
previous checks which bounced upon presentment.
There is, thus, overwhelming evidence contradicting
accused-petitioners posture that the six checks
subject of this appeal were mere guarantees.
accused-petitioner, does not find application to the
present case. In Magno, we held that there was no
violation of the bouncing checks law because there
was evidence that complainant was told by the
drawer that he did not have sufficient funds in the
bank. The drawer, from the very beginning, never hid
the fact that he did not have funds with which to put
up the warranty deposit and openly intimidated the
same to complainant. Although the ruling in Magno
was reiterated in the case of Idos v. Court of
Appeals, again, we note that in Idos, petitioner
repeatedly notified the complainant of the
insufficency of funds. In both cases, the complainant
was duly notified by the drawer of the insufficiency of
funds. It also serves to emphasize that in Idos,
petitioners acquittal was not based on complainants
knowledge that petitioner did not have sufficient
funds in the bank but on some other grounds.
failed to adduce any evidence to substantiate her
claim that private respondent knew that she had
difficulty maintaining sufficient funds in or credit with
the bank.

ADOLPH RAMISH, INC. V WOODRUFF
2 Cal. (2d) 190, 28 P. (2d) 360; 1934
~aida rose~
FACTS
SUBJECT: Question on proper indorsement of P/N to
Adolph Ramish
MAKER: Woodruff
PAYEE: Craig
INDORSEE: Adolph Ramish, Inc.
-Adolph Ramish held the promissory note of Craig for
$13,000. Said note matured on Feb 1932. Craig
and Woodruff exchanged their own negotiable
notes (each for $10,000) dated February 19 and
due in 90 days.
-Craig indorsed the note from Woodruff but it was
uncertain as to whether or not it was for collateral
security for Craigs indebtedness to Adolph
Ramish and was thus treated as an issue in the
case.
-Adolph Ramish sued Woodruff. Woodruff admitted
the notes execution but denied title of Adolph
Ramish, saying that the note was delivered for
inspection and investigation only. He also alleged
that note served as collateral security for the
$6,820 balance of the note and that Adolph
Ramish was not a holder in due course because
it did not take the note by negotiation under
proper indorsement and thus was subject to the
available defenses.
-According to Woodruff, the indorsement by Craig did
not amount to a commercial indorsement but was
merely a guaranty which does not operate as a
transfer cutting off the defenses of the maker.
ISSUE
WACHIOVA BANK & TRUST CO V CRAFTON
181 N.C. 404, 107 S.E. 316 (1921)
~lora~
FACTS
SUBJECT: promissory note
MAKER: J.M. Carver
PAYEE/INDORSER: J.W. Crafton
INDORSEE/HDC: Wachovia Bank and Trust Co.
-The defendant, the indorser, denied liability, alleging
that the P/N was for an amount won in a
gambling transaction hence, void.
-Lower court ruled in favor of defendant. Plaintiff
appealed.
ISSUE
WON the indorsee, a HDC can recover from a P/N
which was for an amount won in a gambling
transaction hence, void.
HELD: YES.
-Statutes applicable render this and all notes and
contracts in like cases void and no action thereon
NEGO - Quevedo 90
Camille Umali
WON the note had been indorsed in accordance with
the law (as an ordinary commercial endorsement)
HELD: YES
-There are two views with regard to this matter:
Minority view: A guaranty placed on a bill or note does
not constitute a commercial negotiation. The
guaranty is considered a separate contract.
Majority view: These are the better reasoned
arguments and are in accordance with the policy
of free circulation of commercial paper as a
substitute for money.
-A person placing his signature in the instrument,
aside from doing so as maker, drawer or
acceptor is deemed to be an indorser unless
there is a clear indication through the words of
being bound in another capacity.
-The tendency of the law is to resolve all doubtful
cases towards holding the same to be a
commercial indorsement in due course.
-Commercial instruments take the place of money and
requiring every assignee to inquire into
circumstances bearing upon the original
execution, along with taking cognizance of all the
equities between the original parties, would
destroy their commercial value.
-The evidence is conflicting with regard to Woodruffs
argument that the note was delivered for
inspection and investigation purposes, along with
an allegation that there was no meeting of the
minds and that there was no authorization to
deliver the note as collateral security.
Disposition Judgment reversed.
can be sustained. The principle however, is
allowed to prevail only where the action is on the
note to enforce its obligations, and does not
affect or extend to suits by an innocent indorsee
for value and HDC against the indorser on his
contract of indorsement.
-The contract of indorsement is a substantive
contract, separable and independent of the
instrument on which it appears, and where it has
been made without ratification, and for value, it
guarantees to a HDC, among other things that
the instrument, at the time of the indorsement, is
a valid and subsisting obligation.
-The law which renders these contracts void was
enacted for the suppression of gambling but it
would tend rather to encourage the vice if a
successful gambler could procure the value of
such a note on his indorsement.
Disposition Judgment Reversed.
 NEGO - Quevedo 91
Camille Umali

HOROWITZ V WOLLOWITZ
59 Misc. 520, 110 NY Supp. 972 (1908)
~marge~

FACTS -It is not necessary to pass upon the question of the

SUBJECT: promissory note prepared by Barnet
Cohen on 18 Dec 1906: worded as follows: Six
months and five days date I promise to pay the
order of myself five hundred dollars at 16-1/2
Carmine St. Value received.
-Said note was delivered to Jacob Jormack.
-At the time of making said note, and prior to its
delivery to Horowitz, Louis Wollowitz indorsed it
w/ intent to charge himself as first indorser.
Thereafter and before maturity, Jormack indorsed
the note to Horowitz for value.
-Horowitz presented the note for payment. Unpaid, he
filed suit in court.
-Defendants [C, J, and W] set up the defense that the
note was tainted with usury in its inception, and
was therefore null and void.
ISSUE
WON an indorser may raise the defense that note is
void for usury
HELD: NO.
availability to the maker of the defense of usury
as against HIDCs, because defendants herein
were sued in their capacity, not as makers, but as
indorsers of the note in question.
-Sec116, US law (Sec 66, NIL): Every indorser who
indorses w/o qualification warrants to all
subsequent holders in due course: xxx (b) that
the instrument is, at the time of his indorsement,
valid and subsisting.
-Under the language of the statute, as applied by the
decisions in Packard v Windholz and Lennon v
Grauer, it must be held that in indorsing the note
the defendant warranted its validity, and he
cannot be heard now to assert that it is void for
usury, any more than for forgery or any other
cause.
-It is an established rule that the obligation of an
indorser is a new and independent contract,
separate and distinct from that evidenced by the
note.
Disposition Judgment reversed. New trial ordered.

INGALLS V MARSTON
121 Me. 182, 116 Atl. 216 (1922)
~anton~
FACTS
PROMISSORS: Herbert L. Marston, Almeda E.
Marston
INDORSERS: Howard W. Smith and Walter H. Foss,
but they signed at the notes inception, hence the
issue whether they are mere indorsers or co-
promissors.
PAYEE: Ingalls
-Herbert L. and Almeda E. Marston signed the note
on its face.
-Howard W. Smith and Walter H. Foss placed their
signatures on the back of the note at its
inception, and before the delivery to the payee,
Ingalls (plaintiff).
-The first instalment was not demanded of the
makers, Herbert and Almeda (at maturity), and
notice of dishonor was not given o Smith and
Foss.
Plaintiffs Claim: All four were original promissors, and
therefore liable.
Defendants Comment: Smith and Foss were merely
indorsers, and therefore free from liability
because of want of demand and notice.
ISSUE
WON Smith and Foss became original promissors
when they signed the instrument on its back.
HELD: NO
Ratio Nature of liability must be expressly stated in
instances where the instrument was signed other than
on its face.
Reasoning
-Before the enactment of the NIL, the law was firmly
settled in states by judicial decisions, that one
who signed his name on the back of a note at its
inception was a joint or joint and several makers
with who signed on the face, so far as necessity
for demand and notice of non-payment was
NEGO - Quevedo 92
Camille Umali
concerned. The passage of the NIL abrogated
this rule of commercial law.
-Sec. 63, NIL: A person placing his signature upon an
instrument otherwise than as maker, drawer, or
acceptor, is deemed to be an indorser, unless he
clearly indicates by appropriate words his
intention to be bound in some other capacity.
-Smith and Foss placed their signatures, not on the
face (as makers), but on the backmeaning
other than makersand they did not indicate by
any words, appropriate or otherwise, any
intention to be bound in some other capacity.
-However Ingalls seeks to differentiate between
regular and irregular indorsers. According to
him, regular endorsers are entitled to have
demand made to the maker first, with due notice
of dishonour given to him (indorser). Such right is
not available to irregular indorsers. This
interpretation however would revert the law back
to the time before the NIL was enacted.
-Sec. 64, NIL: Where a person not otherwise a party
to an instrument, place thereon his signature in
blank before delivery he is liable as an indorser,
in accordance with the following rules:
(1) If the instrument is payable to the order of a third
person, he is liable to the payee and to all subsequent
parties.
In the present case the note was made payable to the
order of a third person, and therefore this section
applies, and these irregular indorsers were made
liable to the payee Ingalls and to all other
subsequent parties. But their liability is that of
indorsers as the section unequivocally provides.
These necessarily imply the inherent elements of
demand and notice of dishonor.
Disposition Smith and Foss are not liable as makers,
but only as indorsers, which requires prior
demand and due notice.

WEST RUSTLAND TRUST CO V HOUSTON
104 Vt. 104, 158 Atl. 69, 80 ALR 664 (1932)
~jonas~
FACTS
-The note in suit is a promissory note, signed by
defendant Buck, an employee of the Buck
Lumber Company, as MAKER then INDORSED
by defendant Houston. This note is a renewal of
another note, also signed by Buck as maker &
indorsed by Houston, which was delivered to
plaintiff bank as collateral security for the
indebtedness of the Buck Lumber Company to it.
-Buck testified that before the note was signed, he
had a talk with F.L. Jones, treasurer of the
plaintiff bank. Jones told him that the bank
examiner was expected to visit the bank very
soon, & that he wanted a new note, to be held by
the bank as collateral, as he thought that the
indebtedness of the Buck Lumber Company to
the bank was larger than the bank examiner
would like. Jones explained that he was afraid
not to have some extra collateral to show the
examiner, & that the note would be held only until
the examiner had examined the books & then
returned to either of the defendants. Houston
testified that he spoke with Buck about signing
the note in suit, & he was told the purpose of the
note, after which he signed it.
-NOTE: the bank examiner is sent by the
commissioner of banking & insurance to oversee
& inspect banks in order to protect the public
interest.
-The receiver of the plaintiff bank (it appears the bank
was subsequently placed in receivership) brought
an action to recover from the defendants, as
makers. The trial was by jury, and at the close of
the evidence, a verdict was directed for plaintiff.
The defendants excepted to the direction of the
verdict & to the judgment thereon.
ISSUE/S
1. WON defendants are bound on the note
2. WON the liability of the defendants is primary &
absolute
NEGO - Quevedo 93
Camille Umali
HELD
1. YES
Ratio If the note was given to plaintiff bank merely as
a semblance of collateral security, the result was
to effect a scheme to deceive the bank examiner.
If so, it was an illegal transaction, and it is against
public policy to permit defendants to rely upon it
as a defense. In such circumstances, the
defendants are bound as the face of the note
discloses.
Reasoning Transactions with banks are affected with
an unusual public interest. It is of public
importance that all dealings with banks be
conducted with integrity & honesty.
2. YES
Ratio Under the Uniform Act, one who takes a
negotiable note as collateral to secure a pre-
existing debt takes for value, even though no
independent consideration is given. An
accommodation party cannot claim the benefit of
being treated as a surety as against a holder for
value, but is liable as if he were financially
interested in the transaction. It follows that the
liability of the defendants on the note is primary &
absolute and that there was no error in the
direction of a verdict against them.
Reasoning Under the Negotiable Instruments Act,
the previous rule to the effect that, if a holder for
value knew a party had signed for
accommodation only he must be treated as a
surety, has been abolished. An accommodation
party is now primarily & absolutely liable on the
instrument to a holder for value.
Sec. 25 provides that xxx an antecedent or pre-
existing debt constitutes value xxx
Sec. 27 provides that xxx where the holder has a lien
on the instrument, xxx he is deemed a holder for
value to the extent of his lien xxx.
Disposition Judgment affirmed.
 NEGO - Quevedo 94
Camille Umali

GOODMAN V GAUL
244 Mass 528, 138 NE 910 (1923)
~monch~

FACTS -The circumstances will show if Gaull was indeed an

SUBJECT: Promissory note accommodation party. It appears Bean did not
MAKER: Bennie Bean ask for the defendants indorsement, or
PAYEE: D. Goodman authorized the plaintiff to obtain it, or that
INDORSERS: Goodman, Gaull defendants signature was agreed upon to be
-Bean signed the not and handed it to Goodman. The affixed for the instrument to become complete.
latter then saw Gaull at his place of business and -It is clear from the record that defendant signed in
asked him if he will indorse a note for Bennie accommodation of the plaintiff. The party for
Bean. Gaull agreed and signed the note. whose accommodation a not is given cannot
-Goodman instituted the action to recover from Gaull enforce it against the accommodator. It is a mere
as indorser the amount in the promissory note. gratuity.
-The plaintiff asks to be allowed to amend and to
ISSUE proceed on the indorsement as a written
WON Gaull is liable guaranty. But the contract itseld fails to show any
conract of guaranty. His signature being on the
HELD: NO note, he is presumed to be a indorser, unless by
Ratio An accommodation party is liable to all some words he indicates his intention to be
subsequent parties except to the party whom he bound by another capacity. Such is lacking in the
accommodated. case.
Reasoning

CLARK V SELLNER
42 Phil. 384 (1921)
~ice~

FACTS with him placing himself with respect to the creditor

SUBJECT: Promissory Note in the same position and with the same liability as
MAKER: Sellner and two others the said signers. It should be noted that the phrase
PAYEE: Clark witout receiving value therefor, as used in Sec. 29
-Sellner and two others signed a note in favor of Clark. of the aforesaid Act, means without receiving
The note reads: payment for lending out his name. If, as in the
Php.12,000 Manila, July 1, 1914 case, a sume of money was received by virtue of
Six months after date, for value received.xxx the note, it is immaterial, so far as the creditor is
(Sgd.) W.H. Clarke, concerned, whether one of the signers has, or has
John Maye. not, received anything for the use of his name. In
By W.H. Clarke, his reality the legal situation of the defendant in this
attorney. case may properly be regarded as that of a joint
(Internal Revenue Stamp) Geo C. Sellner. surety, rather than that of an accommodation party.
-The note matured but was not paid. Defendant argued The defendant as a joint surety, may, upon the maturity
that he did not receive or the whole of the amount of the note, pay the debt, demand the collateral
of the debt; also, that the instrument was not security and dispose of it to his benefit; but there is
presented to him for payment; finally that he is an no proof whatsoever that this was done. As to the
accommodation party thus failure to negotiate plaintiff, he is the holder for value under the
means lack of liability. phrase of said Sec. 29 for he had paid the money to
the signers at the time the note was executed and
ISSUES delivered to him. Who is the holder is defined in
1. WON he is liable. section 191 of the said law thus:
2. WON presentment is necessary. Holder means the payee or indorsee of a bill or note,
3. WON he is merely an accommodation party. who is in possession of it, or the bearer thereof.
And as such holder, he has the right to demand
HELD payment of the debt from the signer of the note,
1. YES. It is not dependent on whether or not he has even though he knows that sai signer is merely an
received any or part of his debt. So long as he is accommodation party (Sec. 29 above cited),
one of the joint and several debtors which he is, assuming the subject to be such, which as has
makes him liable. been stated, is not the case.
2. NO. There is no requirement for presentment. Disposition: Judgment reversed.
3. NO. By putting his signature to the note, he lent his
name not to the creditor, but to those who signed

MAULINI V SERRANO
28 Phil. 640; Moreland; Dec 16, 1914
~rean~
FACTS
-The action was brought by plaintiff Maulini upon the
contract of indorsement alleged to have been made
in his favor by defendant Serrano upon a PN. A PN
was issued by Padern, Moreno and Gimenez in
favor of Serrano for P3K due on Sept. 5 1912. The
note was indorsed on the back as follows: "Pay to
the order of Don Fernando Maulini, value received.
Manila, June 5, 1912. (Sgd.) A. G. Serrano."
-CFI: (1) By verbal agreement between the indorser
Serrano and the indorsee Maulini, the indorser, in
making the indorsement, was acting as agent for
the indorsee, as a mere vehicle for the transference
of naked title, and that his indorsement was wholly
without consideration. (2) It was immaterial whether
there was a consideration for the transfer or not, as
the indorser, under the evidence offered, was an
accommodation indorser. So Maulini appealed.
ISSUES
1 WON CFI erred in ruling that the indorsement was
without consideration,
2 WON CFI erred in holding that Serrano was an
accommodation indorser.
HELD
1 YES
-It seems that Serrano was a broker doing business in
Manila and that part of his business consisted in
looking up and ascertaining persons who had
money to loan as well as those who desired to
borrow money and, acting as a mediary, negotiate
a loan between the two. According to his custom in
transactions of this kind, and the arrangement
made in this particular case, Serrano obtained
compensation for his services of the borrower, the
lender paying nothing. Sometimes this was a
certain % of the sum loaned; at other times it was a
part of the interest which the borrower was to pay,
the latter paying 1% per mo.for use of the money,
the lender taking 1% and the broker 1/2%.
According to the method usually followed in these
transactions, and the procedure in this particular
case, the broker Serrano delivered the money
personally to the borrower, took the note in his own
name and immediately transferred it by
indorsement to the lender. In this case, this was
done at the special request of the indorsee Maulini
and simply as a favor to him, Maulini stating to
Serrano that he did not wish his name to appear on
the books of the borrowing company as a lender of
money and that he desired that the broker take the
note in his own name, immediately transferring to
him title thereto by indorsement. This was done, the
note being at once transferred to the lender.
-There never was a moment when Serrano was the real
owner of the note. It was always the note of the
NEGO - Quevedo 95
Camille Umali
indorsee Maulini, he having furnished the money
which was the consideration for the note directly to
the maker and being the only person who had the
slightest interest therein, Serrano, the broker, acting
solely as an agent, a vehicle by which the naked
title to the note passed from the borrower to the
lender. The only payment that the broker received
was for his services in negotiating the loan. He was
paid absolutely nothing for becoming responsible
as an indorser on the paper, nor did the indorsee
lose, pay or forego anything, or alter his position
thereby.
2. YES. Defendant Serrano was not an accommodation
indorser.
Ratio Where an indorsement is made as a favor to the
indorsee, who requests it, not to secure payment,
but to relieve himself from a distasteful situation,
and where the only consideration for such
indorsement passes from the indorser to the
indorsee, the situation does not present one
creating an accommodation indorsement, nor one
where there is a consideration sufficient to sustain
an action on the indorsement.
Reasoning
-Sec. 29 of NIL defines an accommodation party as
"one who has signed the instrument as maker,
drawer, acceptor, or indorser, w/o receiving value,
and for the purpose of lending his name to some
other person. Such a person is liable on the
instrument to a holder for value, notwithstanding
such holder at the time of taking the instrument
knew the same to be only an accommodation
party."
-CFI misunderstood this definition. The accommodation
to which reference is made in Sec29 is not one to
the person who takes the note i.e., the payee or
indorsee, but one to the maker or indorser of the
note. It is true that in this case it was an
accommodation to the plaintiff, in a popular sense,
to have the defendant indorse the note; but it was
not the accommodation described in the law, but,
rather, a mere favor to him and one which in no
way bound Serrano. In cases of accommodation
indorsement, the indorser makes the indorsement
for the accommodation of the maker. Such an
indorsement is generally for the purpose of better
securing the payment of the note i.e., he lends his
name to the maker, not to the holder.
-In other words: An accommodation note is one to which
the accommodation party has put his name, without
consideration, for the purpose of accommodating
some other party who is to use it and is expected to
pay it. The credit given to the accommodation party
is sufficient consideration to bind the
accommodation maker.
Disposition Judgment reversed and complaint
dismissed.

PHIL. NATL BANK V MAZA
Malcolm; 48 Phil. 207 (1925)
~mel~
FACTS
SUBJECT: five promissory notes of ten thousand
pesos each
MAKER: Ramon Maza and Francisco Mecenas
PAYEE: PNB
-The notes were not taken up by Maza and Mecenas
at maturity. To recover the amounts on the face
of the notes with interest, action was begun by
PNB against Maza and Mecenas in CFI Iloilo.
-Defendants defense was that
a.) the notes were went in blank to them by Enrique
Echaus with the request that they sign them so
that he, Echaus might negotiate them with PNB
in case of need;
b.) defendants have not negotiated the notes with the
bank, nor have they received the value thereof,
or delivered them to the bank in payment of any
pre-existing debt
c.) it was Echaus who negotiated the notes with the
bank and who is accordingly the real party in
interest and the party liable for the payment of
the notes.
-Trial judge rendered judgment in favor of plaintiff and
against defendants jointly and severally
ISSUE
WON The defendants are liable to pay the amount on
the promissory note (considering that they are
accommodation parties)
NEGO - Quevedo 96
Camille Umali
HELD: YES. Their liability on the instruments is
primary and unconditional. Echaus is merely
secondarily liable.
-The most plausible and reasonable stand for the
defendant sis that they are accommodation
parties. But as accommodation parties, the
defendants having signed the instruments without
receiving value therefore and for the purpose of
lending their names to some other person, are
still liable on the instruments. The law now is that
the accommodation party can claim no benefit as
such, but he is liable according to the face of his
undertaking the same as if he were himself
financially interested in the transaction.
-Even if defendants never received the value of the
notes, even assuming that it is fundamental that
an instrument given without consideration does
not create any obligation in favor of the payee,
however, to fasten liability upon an
accommodation maker, it is not necessary
that any consideration should move to him.
The consideration which supports the
promise of the accommodation maker is that
parted with by the person taking the note and
received by the person accommodated.
*When accommodation parties make payment to the
holder of the notes, they have a right to sue the
accommodated party for reimbursement, since
the relation between them in effect is that
principal and sureties, the accommodation
parties being the sureties.
Disposition Judgment affirmed

ACUA V VELOSO
50 Phil 241; Street; 1927
~javi~
FACTS
-Xavier is an agent working in Manila of Veloso.
Veloso has certain properties in Manila but is
based in Cebu. Xavier on his own, is in the
practice of trading real estate as far as his credit
allowed. Xavier wanted to purchase a property in
Legarda for which he lacked P25000 for partial
purchase. He asked assistance from Veloso.
They approached Gonzalez and Gonzalez
agreed to lend the money on two conditions:
1)Xavier and Veloso execute a joint and several
note in the amount lent by Gonzalez; 2) that
Xavier (only) purchases interest which
Gonzalez had in a mortgage credit on a property
in Pangasinan.
-Acuna sued Veloso and Xavier for the amount in the
note and interests. TC gave judgment jointly and
severally against the defendants. TC having
found that Veloso was a mere accommodation
maker as regards Xavier, gave judgment over in
favor of Veloso against Xavier for whatever the
former should pay upon the judgment, and lastly
ordered that Veloso be subrogated to the rights
of the plaintiff Acuna in a mortgage given by
Xavier to secure the debt.
-after execution of note, it was found that the Legarda
property was already encumbered with a
mortgage to another bank. Thus to secure
himself further, Gonzalez asked Xavier to
execute a second mortgage to him upon the
Legarda property. The encumbrance on the
Legarda property was now 25000 plus 22,070
(1/2 interest in the Pangasinan property)
*Acuna is a transferee of the note executed by Xavier
and Veloso. But he is said to be a holder only
and not a holder in due course for although he
purchased the note for value, he purchased the
note 2 years after it fell due. (the court discussed
the case by putting Gonzalez in the shoes of
Acuna.
NEGO - Quevedo 97
Camille Umali
ISSUE
WON Veloso is jointly and severably liable with Xavier
HELD: YES
-In this case the accommodating party and the
accommodated party unite in making a joint and
several note to a person who advances the face
value of the note to one of its makers at the very
time of its creation. The consideration for the
note, as regards both makers, was the money
which the payee advanced to Xavier; and it
cannot be said that the note was lacking in
consideration as to Veloso because he himself
received non of this money. Value was given for
the note, and this was enough. In equity as
between Veloso and Xavier, the former is entitled
to all the rights of surety, and Xavier is the real
debtor; but as to the creditor, both Veloso and
Xavier are mere joint and several makers.
*however the Court noted that the second mortgage
was already under foreclosure. Thus it held that if
the amount received for the foreclosure of such
property is enough to cover the indebtedness of
Xavier and Veloso, Gonzales would thus be fully
paid and that would end the matter.
*issue of Velosos subrogation (Veloso on appeal
raised the issue of his right to be subrogated to
the rights of Gonzalez in case amount after
foreclosure of Legarda property was not enough)
- Veloso's right of subrogation in case enough is not
realized to pay off the whole, must be understood
to extend to such proportion of the proceeds of
the contemplated foreclosure sale of the
mortgaged property on Legarda Street as the
amount of the note, and interest, bears to the
entire secured indebtedness.
*if hindi nyo maintindihan and feeling nyo kulang sa
details, feel free to approach me. Mejo magulo
talaga yung case and may stuff na hindi nilagay
si Campos.
 NEGO - Quevedo 98
Camille Umali

ANG TIONG V TING

L-26767, February 22, 1968; 22 SCRA 713
~brian b~

FACTS TF, appellants reliance on Art. 2071, CC is irrelevant

SUBJECT: PBCom check for P4k, payable to cash or
bearer
DRAWER: Lorenzo Ting
INDORSER: Felipe Ang (indorsement in blank)
BEARER: Ang Tiong, presented check to drawee
bank. When the check was dishonored, he made
written demands to Lorenzo and Felipe.
Unheeded, he filed collection suit in Manila MTC.
-MTC ruled in his favor. CFI affirmed. Case was
elevated to CA, but the latter certified the same to
SC since it involves pure questions of law.
ISSUE
WON Felipe is liable
HELD: YES
-A check is a negotiable instrument governed by NIL
(Secs. 1 and 185).
-A person placing his signature upon an instrument
otherwise than as a maker, drawer or acceptor is
a general indorser unless he clearly indicates by
appropriate words his intention to be bound in
some other capacity (Sec. 63, NIL)
-Even assuming that appellant is just an
accommodation party, he is still liable to HDC
even if the latter, at the time of taking the
instrument, knew him to be only an
accommodation party (Sec. 29)
-Again assuming that Art. 2071, CC applies (being an
accommodation indorser, he may obtain security
from the maker to protect himself against the
danger of insolvency of the latter,) said remedy is
between accommodation indorser and
accommodated party only and cannot diminish
nor defeat the rights of a holder for value.
Disposition Judgment affirmed.

SADAYA V SEVILLA
L-17845, April 27, 1967; 19 SCRA 924
~mini~

FACTS Instruments Law defines the right of one

SUBJECT: promissory note for P15k, with ineterest at
6% per annum, payable on demand
MAKERS: Sevilla, Varona and Sadaya, jointly and
severally
PAYEE: BPI
INDORSEE: C.I.T. Corp, a holder for value in due
course
-Sevilla and Sadaya signed as co-makers as a favor
to Varona. The proceeds of the note, P15k, was
received by Varona alone. As of June 15, 1950,
the outstanding balance was at P4,850. No
payment was made after that date.
-The bank collected the balance plus interest from
Sadaya. Varona didnt reimburse him.
-Sevilla died. Sadaya filed a creditors claim against
his estate for the sum Sadaya paid on the note.
The administrator resisted the claim saying that
the deceased Sevilla did not receive any amount
as consideration for the promissory note, and that
he signed it only as surety for Varona.
ISSUE
WON Sadaya can demand reimbursement for the
amount he paid on the note from his co-
accomodation maker, Sevilla
HELD: NO
-The court goes to the Civil Code for this case,
because nothing extant in the Negotiable
accommodation maker to seek reimbursement
from another.
-Sevilla and Sadaya are, in themselves, co-
guarantors of Varona, so their case is covered by
Art. 2073: When there are two or more
guarantors of the same debt, the one among
them who has paid may demand of each of the
others the share which is proportionally owing
from him.
If any of the guarantors should be insolvent, the
share shall be borne by the others, including the
payer, in the same proportion.
The provisions of this article shall not be applicable
unless the payment has been made in virtue of a
judicial demand or unless the principal debtor is
insolvent.
-Based on that provision, a joint and several
accommodation maker who pays on a
promissory note may directly demand
reimbursement from his co-accommodation
maker without first directing his action against the
principal debtor provided that (a) he made the
payment by virtue of a judicial demand or (b) the
principal debtor is insolvent.
-In this case, Sadayas payment to the bank was
made voluntarily and w/out any judicial demand,
and there is no evidence showing Varona is
insolvent.
Disposition CA judgment affirmed.

PRUDENCIO V CA
L-34339 July 1, 1986; 143 SCRA 7
~ricky~
FACTS
SUBJECT: Promissory note (PN) for P10,000 payable
to PNB secured by a real estate mortgage on the
property of the Prudencios. Concepcion &
Tamayo Construction Company (Company) had
a pending contract with the Bureau of Public
Works for the construction of the municipal
building of Puerto Princesa, Palawan. As the
Company needed funds for the construction,
Toribio, a relative of the Prudencios and the
attorney-in-fact of the Company, prevailed upon
the Prudencios to mortgage their property to
secure the loan of P10,000 being negotiated with
PNB. They were finally persuaded as Toribio also
signed on the day of the signing of the PN a
Deed of Assignment (DA) assigning all payments
from the Bureau to the Company in favor of PNB.
MAKER: Jose Toribio as attorney-in-fact of the
Company and the Spouses Prudencio as
accommodation parties. PAYEE: PNB
-Unknown to the Prudencios and contrary to the DA,
the Bureau, with the approval of PNB, made 3
payments totaling P11,234.40 directly to the
Company for labor and materials. Another
payment for P5,000 was, however, denied by
PNB as the loan was already overdue. The
Company abandoned the work and
subsequently, its life as a partnership expired.
The Bureau rescinded the contract and assumed
the work. The Prudencios wrote PNB requesting
the cancellation of the mortgage since the
conditions of the contract were changed without
their knowledge when PNB allowed payment to
the Company instead of on account of the loan.
PNB refused. The trial court ruled for PNB and
ordered the Prudencios to pay jointly and
severally with the owners of the Company,
Concepcion and Tamayo. The CA affirmed.
ISSUES
1. WON the CA erred in holding the Prudencios as
solidary co-debtors instead of sureties.
2. WON the CA erred in not holding that the
Prudencios were released from their obligation
when PNB, without their knowledge and consent,
changed the tenor and condition of the
assignment of payments made by the principal
debtor and released to such principal debtor
payments from the Bureau which were more than
enough to wipe out the indebtedness to the PNB.
NEGO - Quevedo 99
Camille Umali
HELD
1. NO.
Ratio In lending his name to the accommodated
party, the accommodation party is in effect a
surety. However, unlike a contract of suretyship,
the liability of the accommodation party remains
not only primary but also unconditional to a
holder for value such that even if 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.
2. YES.
Ratio Between the immediate parties to a negotiable
instrument the parties between whom there is
privity the consideration may be inquired into;
and as to them the only superiority of a bill or
note over other unsealed evidence of debt is that
it prima facie imports a consideration.
Reasoning Although as a general rule, a payee may
be considered a holder in due course, in this
case, such a rule cannot apply to PNB. Not only
was PNB an immediate party or in privy to the
PN, that is, it had dealt directly with the
Prudencios knowing fully well that the latter only
signed as accommodation makers but more
important, it was the DA executed by the
Company in favor of PNB which principally
moved the Prudencios to sign the PN also in
favor of PNB. Under the terms of the DA, it is
clear that there are no further conditions which
could possibly alter the agreement without the
consent of the Prudencios. Yet, PNB approved
the Bureaus release of 3 payments directly to the
Company in violation of the DA and without
notice to the Prudencios who stood to lose their
property once the PN falls due without it having
been paid because PNB, in effect, waived
payment of the first three releases. PNB cannot
be regarded as having acted in good faith which
is also one of the requisites of a holder in due
course. Thus, the Prudencios can validly set up
their personal defense of release from the real
estate mortgage against PNB.
Disposition Petition is GRANTED. Decision of the
CA reversed.

AUSTIN, NICHOLS & CO V GROSS
98 Conn. 782, 120 Atl. 596 (1923) ~joey~
FACTS
SUBJECT: check in payment for goods by State Street
Grocery
DRAWER: (?) State Street Grocery/ Gross, principal
stockholder
DRAWEE: Pallotti, Andretta & Co., Bankers
PAYEE: Austin, Nichols & Co. Inc.
-The check had the following tenor:
Pay to the order of Austin, Nichols & Co., Inc., $334
86/100, three hundred thirty-four 86/100 dollars. M.
Gross.
State Street Grocery Co. Inc.
-The check was duly presented for payment and has not
been paid. At this time, plaintiff had no account with
Gross personally.
-Plaintiff sued Gross, not State Street Grocery.
-Parol evidence, offered by Gross for the purpose of
showing that the check sued on was the check of
the State Street Grocery
Co., was excluded. Judgment against Gross.
ISSUE
WON parol evidence is admissible to prove that the
signature M. Gross was not an individual
signature but was the signature of State Street
Grocery Co. Inc.
HELD: YES
-The decision must be based upon the terms of Sec. 20
of the Negotiable Instruments Law. This section
covers at least five classes of cases. The instant
case falls under the fifth class: Where the
negotiable instrument contains words indicating that
NEW GEORGIA NATL BANK OF ALBANY V J&G LIPPMANN
249 NY 307, 164 NE 108, 80 ALR 1344 (1927) ~chriscaps~
FACTS
Plaintiff is owner thru indorsement of promissory note
signed J&G Lippmann, LJ Lippmann, Pres. It asks
for judgment in the alternative against corporation
(maker of note) or against the president personally
if he acted w/o authority.
ISSUE
WON the president should be personally liable
HELD: YES
-At common law, remedy against agent signing a note
w/o authority was not upon note itself, but for
breach of implied warranty.
-The proviso that the agent or representative shall not
be liable on instrument if he was authorized to sign,
carries w/ it a fair implication that he shall be liable
if not authorized.
-Held in a case: a note bearing name of corp in margin,
signed by pres and treas in own names w/ addition
NEGO - Quevedo 100
Camille Umali
one has signed for or on behalf of a principal, or in
a representative capacity, he is not liable if he was
duly authorized.
-Whether defendant Gross was authorized to sign or
not, and whether the check contains words
indicating that he signed for and in behalf of a
principal or in a representative capacity, might be
proved by evidence outside the check for the
purpose of carrying out the intention of the parties
and establishing just what the contract was, not to
vary it, but to ascertain it.
-We do not understand how the fact of authorization
could be proved in any case where it was not
established by the instrument except by extraneous
evidence. The body of the check does not contain
any reference to the State Street Grocery as the
drawer of the check. But this section of the statute
does not say that the words indicating the relation
in which Gross signed the check must appear in the
body of the check.
-If words appear on any part of the check indicating that
Gross signed in behalf of the State Street Grocery,
that will be sufficient, whether the words appear at
the head of the check or on its margin. All that is
necessary between the original parties is that these
words should be such as to reasonably apprise or
put on notice the payee that it was or might be the
check of the company, and not of Gross. By such
proof the true contract is revealed, and the intention
of the parties effected.
Disposition A new trial is in order.
of official titles, and discounted by a bank w/o
notice dehors the instrument, was in law the
individual promise.
-The statute doesnt distinguish between cases where
he has indicated his intention unmistakably and
where he has done so more obscurely. Liability is
imposed upon agent, not in the aid of his intention,
for the hypothesis intention to the contrary has
been adequately revealed. Liability exists as a duty
imposed by law.
-If agent signing w/o authority isnt liable, there might be
a failure of justice when note wrongfully issued was
in the hands of later holders. No doubt a remedy in
tort is available to such holder if agent had
misrepresented his authority as to be guilty of fraud.
-In proportion as the agent was relieved of liability if he
acted w/ authority, there was need to charge him w/
liability if authority was lacking.

PRATT V HOPPER
12 Cal App.(2d) 291, 55 P. 2d 517 (1936)
~del~
FACTS
-Mabel Pratt conveyed a tract of land to Mitchell
Mayer.
-Mayer then executed a deed of trust to the California
Trust Co.(CTC) as trustee and Pratt as
beneficiary therein.
-Mayer also executed a deed of the property to
Hopper and Payne.
-Trimble carried on the negotiations for the purchase
of the property for the parties.
-The trust from Mayer to the CTC secured the
payment of a note representing a portion of the
purchase price.
-Said note was signed by Mayer in his individual
capacity and not designating himself as an agent.
Neither did he disclose in the note the names of
any of the other interested parties in the
transaction.
-Pratt sued Mayer, Hopper, Payne and Trimble to
recover a deficiency on the note.
ISSUE
WON Mayer is liable on the instrument as agent
HELD: NO.
-All the exhibits show that Mayer signed in his
individual capacity and not as agent for other
defendants. The exhibits dont show either that a
trade-name was used or that the parties thereto
were partners.
NEGO - Quevedo 101
Camille Umali
-An undisclosed principal has been held liable except
in cases of negotiable instruments and
specialties, but the law seems well settled that in
the case of negotiable instruments an
undisclosed principal could not be charged at any
time.
-In the case of negotiable instruments, this restriction
arises, not by reason of the status of the parties,
but by reason of the character of the instrument.
When a negotiable instrument is executed by
an agent without sufficiently indicating on its
face who the principal is, parol evidence
cannot be introduced to charge the principal,
although the agent executed the instrument
as an agent.
-This exception to the rule is based upon the reason
that each party who takes a negotiable
instrument makes his contract with the parties
who appear on its face to be bound for its
payment; and in suits upon negotiable
instruments no evidence to charge any principal
thereto unless his name in some way is disclosed
on the instrument itself.
-The instrument in question here was a negotiable
instrument (even if it was secured by a deed of
trust as it is negotiable in form). To go beyond the
face of the instrument is to nullify Sec. 3099 of
the US CC.
Disposition Judgment affirmed.

INSULAR DRUG CO V PHIL. NATL BANK
Malcolm; G.R. No. L-38816 58 Phil. 684 (1933) ~jaja~
FACTS
-The Insular Drug Co., Inc., is a Philippine corporation
with offices in the City of Manila. U.E. Foerster was
formerly a salesman of drug company for the
Islands of Panay and Negros. Foerster also acted
as a collector for the company. He was instructed to
take the checks which came to his hands for the
drug company to the Iloilo branch of the Chartered
Bank of India, Australia and China and deposit the
amounts to the credit of the drug company. Instead,
Foerster deposited checks, including those of Juan
Llorente, Dolores Salcedo, Estanislao Salcedo, and
a fourth party, with the Iloilo branch of the Philippine -The bank could tell by the checks themselves that the
National Bank. The checks were in that bank
placed in the personal account of Foerster. Some of
the checks were drawn against the Bank of
Philippine National Bank. After the indorsement on
the checks was written "Received payment prior
indorsement guaranteed by Philippine National
bank, Iloilo Branch, Angel Padilla, Manager." The
indorsement on the checks took various forms. In
this connection it should be explained that Carmen
E. de Foerster was his stenographer. As a
consequence of the indorsements on checks the
amounts therein stated were subsequently
withdrawn by U. E., Foerster and Carmen E. de
Foerster.
-Eventually the Manila office of the drug company
investigated the transactions of Foerster. Upon the
PBCOM V ARUEGO
L-25736, Jan 31, 1981; 102 SCRA 530 ~iNa~
NATURE
Appeal from an order of trial court denying motion to set
aside order of default. (Remember requirements to
set aside default order: failure to answer was due to
FAME and that defendant has meritorious defense.)
The SC found that failure was due to E; but
defendant (Aruego) does not have a meritorious
defense.
FACTS
-Involves 22 transactions between Bank and Aruego for
the printing of defendant's periodical. Defendant
had a credit accommodation with Bank. The
printers would collect the cost of printing from Bank.
The total amount demanded was P35k.
-The instruments were signed: "Jose Aruego (Acceptor)
(Sgd.) Jose Aruego"
Aruego's defenses:
1. he signed in his capacity as President of Philippine
Education Foundation (PEFC), publisher of the
periodical
2. he's not a principal obligor, but only an
accommodation party
3. the documents are not legally bills of exchange but
only instruments evidencing indebtedness because
payments were made before acceptance
NEGO - Quevedo 102
Camille Umali
discovery of anomalies, Foerster committed suicide. But
there is no evidence showing that the bank knew that
Foerster was misappropriating the funds of his principal.
The Insular Drug Company claims that it never received
the face value of 132 checks here in the question
covering a total of P18,285.92.
ISSUE
WON the bank is responsible to the drug company for
the amounts represented by the checks
HELD: YES
money belonged to the Insular Drug Co., Inc., and
not to Foerster or his wife or his clerk. When the
bank credited those checks to the personal account
of Foerster and permitted Foerster and his wife to
make withdrawals without there being made
authority from the drug company to do so, the bank
made itself responsible to the drug company for the
amounts represented by the checks. The bank
could relieve itself from responsibility by pleading
and proving that after the money was withdrawn
from the bank it passed to the drug company which
thus suffered no loss, but the bank has not done so.
The bank will have to stand the loss occasioned by
the negligence of its agents.
Disposition Judgment affirmed.
ISSUES
1. WON Aruego is a mere representative
2. WON Aruego is a primarily liable
3. WON the documents are bills of exchange
HELD
1. NO
-Sec. 20 of NIL says that an agent who does not
disclose his principal is not exempt from liability.
Aruego did not disclose that he was signing as a
representative of PEFC. For failure to disclose his
principal, Aruego is personally liable.
2. YES
-Accomodation party = one who signs instrument as
maker, drawer, indorser, without receiving value for
the purpose of lending his name = surety; therefore,
primarily liable.
-The defendant who is a lawyer should not have signed
as an acceptor/drawee. In doing so, he became
primarily and personally liable for the drafts.
3. YES
-As long as a commercial paper conforms with the
definition of a bill of exchange, that paper is
considered a bill of exchange. The nature of
acceptance is important only in the determination of
the kind of liabilities of the parties involved, but not
in the determination of whether a commercial paper
is a bill of exchange or not.

COLUMBIAN BANKING CO V BOWEN
134 Wis. 218, 114 N.W. 451 (1908)
~chrislao~
FACTS
-Farmer's Merchant Bank (drawer) sold $400 draft
drawn on National Bank of North America
(drawee) payable to Bowen (payee).
-Bowen indorsed and forwarded by mail the draft to
Trabert, a traveler. The endorsement was made
on June 16, 1903.
-Trabert indorsed the draft to Columbian Banking
Co. Columbian presented the draft to drawee
bank for payment. This was refused. Columbian
demanded payment from Bowen.
ISSUE
WON Bowen (as an indorser, hence, secondarily
liable) was released from liability on the draft
because of period intervening between his
indorsement and the presentation to drawee for
payment.
HELD: NO. Bowen was NOT released from
liability.
-The only time to be considered here is the time
intervening between the last negotiation and the
presentment (meaning between time when
Trabert negotiated it to Columbia and the time
when Columbia presented the said draft to
drawee bank for payment, NOT the time when
Bowen let go of the draft)
-Bowen unqualifiedly indorsed the draft and put it in
circulation by sending it to Trabert at a distant
FICK V JONES
185 Wash. 365, 55 P. 2d 334 (1936)
~apple~
FACTS
SUBJECT: Check
DRAWER: J.W. Jones
DRAWEE: People's Bank and Trust Company
PAYEE: E.P. Fick
-Fick brought an action on the check against
Jones
-Judgment was rendered in Fick's favor [*it was
neither alleged nor proven that the check was
ever presented to the drawee for payment: the
TC found it had not been presented to drawee
but to drawer in 1933 (check dated 1929), who
refused to pay it]
-Jones appealed on the ground that an action on
a check cannot be had against the drawer
without allegation and proof of presentment and
demand on the drawee
ISSUE
WON an action on a check can be had against
the drawer without presentment and demand on
the drawee
NEGO - Quevedo 103
Camille Umali
part of the country and probably knowing that
Trabert was travelling to San Francisco where he
would negotiate the paper. At any rate, the
important thing is that after Trabert negotiated the
draft, said draft was immediately presented for
payment.
*Note that this case involves a draft which is a bill of
exchange. 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. As to what constitutes reasonable time is
a question of fact. In the case at bar, the court is
satisfied that the draft was presented for payment
within a reasonable time.
Campos Notes: Under Sec. 71 (on demand nego
instruments), the liability of the drawer and
indorsers (emphasis by me), of a demand bill
can be preserved indefinitely, provided
presentment is made WITHIN A REASONABLE
TIME FOR LAST NEGOTATION. But take note,
under Sec. 53, where an instrument payable on
demand is negotiated in an unreasonable length
of time after issue, the holder is NOT a HDC.
THUS (as a way of reconciling the two), although
a reasonable time may not have elapsed
between the last negotiation and presentment for
payment of a demand bill (and so the secondary
parties remain liable), the holder who takes the
instrument after the lapse of a reasonable time
from issue, will be subject to personal defenses.
HELD: NO.
-Fick cited a number of cases to support his
contention that failure to present a check to the
drawee does not release the drawer unless he
sustains loss or injury in consequence of such
failure
-However, these cases go only to the extent of
holding that the debt, which the check was
designed to pay, is charged only to the extent
that the drawer has sustained loss by the failure
or negligent delay of the payee to present the
check to the drawee for payment
-Issue of loss or injury to drawer arises only when
he claims the debt is discharged by reason of
negligence of payee in presenting the check for
payment--this is not the case
-Such cases do not encroach upon the rule that
presentment, demand and notice of dishonor are
essential prerequisites to an action against the
drawer on a check
Disposition Judgment reversed, case remanded,
with direction to dismiss.
 NEGO - Quevedo 104
Camille Umali

GORDON V LEVINE
Morton; 194 Mass. 418, 80 NE 505; (1907)
~rach~
FACTS
SUBJECT: Check dated December 30, 1905, Saturday
DRAWER: Max Levine, defendant
DRAWEE: Provident Securities & Banking Company
PAYEE: Samuel Gordon, plaintiff
-Gordons version: Levine asked him not to present the
check for a couple of days; still, he presented it on
Monday morning and was told there were no funds.
Gordon then passed the check to one Saievitz in
payment of a bill. On Tues, Saievitz indorsed it to one
Rootstein who deposited it on Thurs, in the Faneuil Hall
National Bank, Boston, for collection. On Friday, that
bank's messenger then went to the bank on which the
check was drawn, the Provident Securities & Banking
Company, and found its doors closed. Hence, with this
non-payment, Levine should still be liable.
-Levines version: When the check was drawn, he had
sufficient funds on deposit at the bank to meet it, and
continued to maintain such account. The check should
have been presented for payment within a reasonable
time -the check in suit should have been presented
before the close of banking hours on Mon, Jan 1.
-The court refused to instruct the jury that the transfer to
successive holders would not extend the time, or that a
presentment on Friday was not within a reasonable
time. Defendant seeks exceptions from this ruling.
ISSUE
WON there was proper diligence in presentment
HELD: NO
-Where the drawer, the drawee and the payee of a
check are all in the same city or town, the check should
be presented for payment before the close of banking
hours on the day after its delivery, and its circulation
from hand to hand by indorsement does not extend the
time for its presentment. If it is presented and paid
afterwards the drawer suffers no harm. But if not
presented within the time thus fixed, and there is a loss
it falls not on him but on the holder.
-The general rule is that a check must be presented for
payment within a reasonable time after it is issued.
If it is not so presented and the drawer sustains a
loss by reason of the failure of the drawee, he will
be discharged from liability to the extent of such
loss, continuing liable otherwise. This results from
the nature of the instrument which though defined
in the negotiable instruments act as 'a bill of
exchange drawn on a bank payable on demand' is
intended for immediate use and not to circulate as a
promissory note, and it consequently would be
unjust to subject the drawer to the loss if any
resulting from failure to present it for payment within
a reasonable time.
-'In determining what is a 'reasonable time' or an
'unreasonable time' regard is to be had to the nature of
the instrument, the usage of trade or business, if any,
with respect to such instruments and the facts of the
particular case.'
Disposition Exceptions sustained.

MORRISON V McCARTNEY
30 Mo. 183
~cHa~
FACTS before suit, brought, and within a reasonable time,
SUBJECT: check delivered and transferred on demand, protest, and notice were duly given
Oct.2, 1957 but was presented only on January
1958 HELD: YES
DRAWER: McCartney -The drawer is treated as in some sort of principal
DRAWEE: E.W. Clark & Brothers (C&B) debtor, and he is not discharged by any laches of
PAYEE: Bohn & Co. the holder in not making due presentment thereof,
SUBSEQUENT INDORSEMENTS: Bohn & Co. to or in not giving him notice of the dishonor, unless
Morrison he has suffered some loss or injury thereby, and
-Check was not presented Oct.3 because C&B was then only pro tanto.
closed or stopped payment. On Oct.6, McCartney -The drawer is the principal debtor. The check is the
who previously commenced suits by attachment acknowledgement of a certain sum due. It is an
compromised the suits, settled with the C&B then absolute appropriation of so much money in the
withdrew his deposits with C&B. Morrison only hands of his banker to the holder if the check, and
presented check January 1958, payment refused, there it ought to remain till called for; and unless the
duly protested, notice given to McCartney. drawer actually suffers by the delay, as by the
intermediate failure of his banker, he has no reason
ISSUE to complain of delay not unreasonably protracted. If
WON Morrison was entitled to recover, notwithstanding the holder does so unreasonably delay, he
their failure to present the check on the day after it assumes the risk of the drawees failure, and he
was endorsed to them, upon showing that the may, under circumstances, be deemed to have
drawer sustained no injury by the delay, and that made the check his own to the discharge of the
drawer.

PHIL. NATL BANK V SEETO
Labrador; 91 Phil. 756 (1952)
~jojo~
FACTS
On March 13, 1948, Benito Seeto called at the
Surigao Branch of PNB, and presented a check
in the amount of P5,000, payable to cash or
bearer, and drawn by one Gan Yek Kiao against
the Cebu branch of the Philippine Bank of
Communications (PBC). After consultation with
the employees of the branch, Seeto made a
general and unqualified indorsement of the
check, and PNB's agency accepted it and paid
Seeto the amount of P5,000 therefor. The check
was mailed to PNB's Cebu branch on March 20,
1948, and was presented to PBC for payment on
April 9, 1948, but the check was dishonored for
"insufficient funds." So the check was returned to
PNB's Surigao agency, and upon receipt thereof
by it on April 14, 1948, said branch sent two
letters to Seeto demanding immediate refund of
the value of the check, to Seeto answered asking
that PNB's contemplated suit be deferred while
he was making inquiries about the reasons for
the dishonor of the check. Thereafter, Seeto
refused to make the refund demanded, claiming
that at the time of the negotiation of the check the
drawer had sufficient funds in the drawee bank
PBC, and that had PNB's Surigao agency not
delayed to forward the check until the drawer's
funds were exhausted, the same would have
been paid.
ISSUE
WON indorsee Seetois liable for the refund
demanded by PNB
HELD:NO.
-Section 84 of the Negotiable Instrument Law is
applicable, but its application is subject to the
condition imposed by Section 186, to the effect
that the check must be presented for payment
within a reasonable time after its issue.
SEC. 84. Liability of person secondarily liable, when
instrument dishonored. Subject to the provisions
of this Act, when the instrument is dishonored by
nonpayment, an immediate right of recourse to all
parties secondarily liable thereon accrues to the
holder.
SEC. 186. Within what time a check must be
presented. A check must be presented for
payment within a reasonable time after its issue
or the drawer will be discharged from liability
thereon to the extent of the loss caused by the
delay.
NEGO - Quevedo 105
Camille Umali
-The silence of Sec. 186 as to the indorser is due to
the fact that his discharge is already expressly
covered by the provision of Section 84, the
indorser being a person secondarily liable on the
instrument. The reason for the difference
between the liability of the indorser and that of
the drawer in case of dishonor is that the drawer
is not probably or necessarily prejudiced thereby,
while an indorser is, actually or by legal
presumption.
-There is no authority sustaining the proposition that
an indorser of a check is not discharged from
liability for an unreasonable delay in presentation
for payment. This is contrary to the essential
nature and character of negotiable instruments -
their negotiability. They are supposed to be
passed on with promptness in the ordinary
course of business transactions; not to be
retained or kept for such time as the holder may
want, otherwise the smooth flow of commercial
transactions would be hindered.
-It is not claimed by PNB that the conclusion of the
CA that there was unreasonable delay in the
presentation of the check for payment at the
drawee bank is erroneous. The fact, admitted by
the witnesses for the petitioner, that checks of the
drawer issued subsequent to March 13, 1948,
drawn against the same bank and cashed at the
same Surigao agency, were not dishonored
positively shows that the drawer had enough
funds when he issued the check in question, and
that had it not been for the unreasonable delay in
its presentation for payment, the petitioner herein
would have been able to receive payment
therefor. The check is dated March 10 and was
cashed by the petitioner's agency on March 13,
1948. It was not mailed until seven days
thereafter, or ten days after issue. No excuse
was given for this delay. Assuming that it took
one week, or say ten days, or until March 30, for
the check to reach Cebu, neither can there be
any excuse for not presenting it for payment at
the drawee bank until -- The supposed
assurances of refund in case of dishonor of the
check are precisely the ordinary obligations of an
indorser, and these obligations are, under the
law, considered discharged by an unreasonable
delay in the presentation of the check for
payment.

CRYSTAL V CA [Ocang, de Gracia]
L-No. 35767, June 18, 1976; 71 SCRA 443
~kiyo~
FACTS
-The SC affirmed a CA decision, holding that
Raymundo Crystals redemption of the 4 parcels
of land in question acquired by Pelagia Ocang, et
al, was invalid as the check which Crystal used in
paying the redemption price of P11,200 had been
either dishonored or had become stale hence,
the value of the check was never realized.
Crystal filed and MFR.
ISSUE
WON the conflicting circumstances of the check being
dishonored and becoming stale affect the validity
of the redemption sale
HELD
CHAN WAN V TAN KIM
Bengzon; 50 O.G. 1554 (1960)
~athe~
FACTS
-Tan Kim drew 11 checks payable to cash or bearer
upon the Equitable Banking Corp payable to
Pinong and Muy for some shoes the former had
promised (8 of these checks bear two parallel
lines between which these words are written:
non-negotiable-China Banking Corporation).
-The checks were deposited with the CBC and the
latter presented to the drawee for collection.
However, as the drawee had no funds they were
unpaid and returned.
-The checks reached the hands of Chan Wan. He
presented them to the drawee bank (EBC) but
they were all dishonored on the ground that the
plaintiff (a) failed to prove he was a holder in due
course, and (b) the checks been crossed checks
should not have been presented to the drawee
NEGO - Quevedo 106
Camille Umali
-For a check to be dishonored upon presentment and
to be stale for not being presented at all in time
are incompatible developments that have variant
legal consequences. If indeed the questioned
check was dishonored, the redemption was null
and void. If it had only become stale, it becomes
imperative that the circumstances that caused its
non-presentment be determined, for if it was not
due to the fault of the drawer, it would be unfair to
deprive him of the rights he had acquired as
redemptioner. In this case, there is a strong
showing that the check was not dishonored,
although it became stale, and that Pelagia Ocang
had actually been paid the full value thereof.
Disposition SC decision is reconsidered and the
case remanded to the TC.
for payment, but should have been deposited
instead with the bank mentioned in the crossing.
HELD
-Chan Wan is indeed not a holder in due course since
he knew that the checks had already been
dishonored. However, it does not follow that
simply because he was not a HDC, he could not
recover on the checks. His only disadvantage is
that the negotiable instrument is subject to
defenses as if it were non-negotiable. But since
lower court did not mention what defenses Tan
Kin prove, the case was remanded to the trial
court for determination of whether any defense
existed between the original parties.

ASSOCIATED BANK, Cruz V CA, Reyes
208 SCRA 465; Cruz; May 27, 1992
~giulia~
FACTS
Reyes in engaged in the business of RTW garments
under the firm name 'Melissa's RTW.' The
companies she deals with issue in payment
crossed checks payable to Melissa's RTW.
When Reyes went to the companies to collect on
what she thought were still unpaid accounts, she
was informed of the issuance of the crossed
checks. Further inquiry revealed that the said
checks had been deposited with the Associated
Bank (bank) and subsequently paid to Sayson.
According too the branch manager, Cruz, Sayson
had not been authorized by the private
respondent to deposit and encash the said
checks.
Reyes sued the petitioners to which RTC rendered a
decision requiring the petitioners to pay the
respondehnt the total value of the checks.
Petitioners appealed saying that the the respondent
had no cause of action and should have
proceeded against the companies instead. CA
affirmed the judgment of the RTC.
ISSUE
WON Reyes had cause of action against the
petitioners
HELD: YES.
There being no evidence that the crossed checks
were acutally received by the respondent, she
would have a right of action against the drawer
companies, which in turn could sue the petitioner
as a collecting bank. In a similar situationn, to
simplify the proceedings, tha payee of the
illegally encashed checks could be allowed to
recover directly from the bank responsible for
such encashment regardless of whether or not
the checks were actually delivered to the payee.
NEGO - Quevedo 107
Camille Umali
Crossing a check is special where the name of a bank
or a business institution is written between 2
parallel lines, which means that the drawee
should pay only with the intervention of that
company. This means that the drawee should not
encash the check but merely accept it for deposit.
In State Investment House v IAC the court held that
the effects of crossing a check are: (1) that the
check may not be encashed but only deposited in
the bank; and (2) that the check may be
negotiated only once to one who has account
with a bank and; (3) that the act of crossing the
chec serves as a warning to the holder that the
check has been issued for a definite purpose so
that he must inquire if he ahs received the check
pursuant to that purpose.
Under Sec 72,NIL, presentment of payment, to be
sufficient, must be made by the holder or by
some person authorized to receive payment on
his behalf. Who the holder or authorized person
is depends on the instruction stated on the face
of the check.
The possession of a check on a forged or
unauthorized indorsement is wrongful, and when
the money is collected on the check, the bank
can be held for moneys had and received.
The bank was negligent.
The petitioners also argued that the respondent's
husband was the one who indorsed the check.
Assuming that he did, the bank would still be
liable because the husband was not authorized to
make the indorsements. There is no substantial
difference between an actual forging of a name to
a check as an endorsement by a person not
authorized to make the signature and the affixing
of a name to a check as an indorsement by a
peson not authorized to indorse it.
 NEGO - Quevedo 108
Camille Umali

GULLAS V PHIL. NATL BANK

Malcolm; 62 Phil 519 (1935)
~ajang~

FACTS
-Atty. Gullas has a current account with PNB. The
treasurer of the U.S. for the United Veterans
Bureau issued a treasury warrant worth $361
payable to the order of Sabectoria Bacos. Atty.
Gullas and Pedro Lopez signed as indorsers of
this check. Thereupon, it was cashed by PNB.
However, the treasury warrant was dishonored
by the Insular Treasury, so PNB sent notices by
mail to Gullas which could not be delivered to him
at that time because he was in Manila. In the
letter, the bank said that in view of the fact that
the treasury warrant was dishonored, the bank
has applied the outstanding balances of his
current accounts (worth P509) to the part
payment of the check.
-When Atty. Gullas went back to Cebu, he received
the notice of dishonor and immediately paid the
unpaid balance of the treasury warrant.
-However, Atty. Gullas was inconvenieced because of
this. Check including one for his insurance was
not paid because of lack of funds. Also,
periodicals in the vicinity gave prominence to this
news, to great mortification of Gullas.
ISSUES:
1. WON PNB had right to apply a deposit to debt of
the depositor to the bank
2. WON award for damages should be given to Atty.
Gullas
HELD
1. YES.
-As a general rule, a bank has a right of set off of the
deposits in its hands for the payment of any
indebtedness to it on the part of the depositor. In
Louisiana however, the rule is denied and it is held
that a bank has no such right without an order from or
special assent of the depositor. The basis of this
doctrine is the theory of confidential contracts arising
from irregular deposits e.g. the deposit of money with
a banker. The court decided to adopt the general rule
as more in harmony with modern banking practice.
From this premise that PNB had the right, the next
question is whether the bank properly enforced such
right. The bank mailed the notice of dishonor, but
made use of the money standing in hi saccount
without waiting for any action by Gullas. Thus, Gullas
didnt have any notice of the set off when he issued
the other checks. It must be noted that Gullas was
merely an indorser of the treasury warrant. As to an
indorser, the situation is different, notice should
actually have been given to him in order that he might
protect his interest.
2. YES.
-Atty. Gullas should be awarded nominal damages,
P250, because of the premature action of the bank
against Gullas, he had no means of protection.

STATE BANK OF EAST MOLINE V STANDAERT

335 Ill. App. 519, 82 N.E. 2d 393
~glaisa~

FACTS WON the plaintiff bank gave the indorser notice of

SUBJECT: a promissory note
MAKERS: Alfons and Lena Standaert
INDORSEES: Alois and Anna de Vos
-Alfons and Lena made and delivered the PN to Alois
and Anna. The note recited it was secured by
real estate mortgage.
-Alois and Anna sold the note and the mortgage to the
plaintiff bank. Note was not paid. Bank sued the
makers and the indorsees.
-During trial, bank offered the testimony of its teller-
bookkeeper who said that it was unswerving
custom of the bank to send to the parties, 10
days prior to its maturity date.
-Anna maintains she did not receive any notice that
the note was dishonored.
ISSUE
dishonor as required under the Negotiable
Instruments Law
HELD: NO
-To charge an indorser with the payment of the note,
the plaintiff must establish that the notice of
dishonor was addressed and was actually made
which may be proven by direct or circumstantial
evidence.
-In the case, other that the description of the general
custom of the bank of notifying indorser, the only
evidence tending to prove, even circumstantially,
that the notice of dishonor was prepared and
mailed to the defendant was the inference from
the teller-bookkeepers self-serving declaration
that she always did her duty and never failed to
send out notice of dishonor.

ARTERBURN V WAKEFIELD
309 Ky. 212, 217 S.W. 2nd 203 (1949)
~RPR~
FACTS
-Arterburn drew a check for $1,000 payable to JH and
HA Wakefield and delivered the same for value.
The check was dishonored on presentment. The
payee sued. As defense, the maker alleged that
since the petition did not aver that notice [of the
non-payment of the check when presented at the
bank] was given to him, no cause of action was
stated. Arterburn argued that a check is a bill of
exchange and hence a notice must be given the
drawer; otherwise, maker is discharged. In
support of this contention the defendant cited two
provisions of the law as follows:
356.185. Check defined. A check is a bill of
exchange drawn on a bank payable on demand.
Except as herein otherwise provided, the
provisions of this chapter applicable to a bill of
exchange payable on demand apply to a check.
356.089. Notice of dishonor. Except as
otherwise provided in this chapter, when a
negotiable instrument has been dishonored by
non-acceptance or non-payment, notice of
dishonor must be given to the drawer and to each
indorser, and any drawer or indorser to whom
such notice is not given is discharged.
ISSUE
WON in an action on a check the petition must aver
that the maker of the check was given notice that
it was dishonored
HELD: NO
-The two sections quoted by the defendant, when
taken independent of the other provisions, would
seem to imply that a failure to give notice of
dishonor of a check discharges the maker.
However, several provisions of the NIL stand in
NEGO - Quevedo 109
Camille Umali
pari material and must be construed as to give
each a field of operation. While Article 356.185
makes a check a bill of exchange, it does not so
unqualifiedly but only except as herein otherwise
provided. On the other hand, Article 356.186
seem to create a distinction between a check and
a bill of exchange in that the maker of the check
is released upon the delay of the payee in
presenting a check payment but only to the
extent of the loss caused by the delay.
-Even assuming that he is entitled to notice, the
following provision of Article 356.114 would
apply:
356.114. When notice to drawer not required.
Notice of dishonor is not required to be given to
the drawer in either of the following cases: (1)
Where the drawer and the drawee are the same
person; (2) Where the drawee is a fictitious
person or a person not having capacity to
contract; (3) Where the drawer is the person to
whom the instrument is presented for payment;
(4) Where the drawer has no right to expect or
require that the drawee or acceptor will honor the
instrument; (5) Where the drawer has
countermanded payment
-Banks would normally not pay or dishonor a check
due to insufficiency of funds in the account of the
maker or to a stop payment order by the maker.
In which case, if the dishonor or non-payment of
the check is due to the stop payment order, then
it is covered by the fifth condition of Article
356.114. If on the other hand, non-payment is
due to lack of funds, he has no right to expect or
require the bank to pay his check. This situation
is covered by the fourth condition of Article
356.114.
Disposition Judgment affirmed.

SIMON V PEOPLES BANK & TRUST CO
116 N.J.L. 390, 184 Atl. 793 (1936)
~owen~
FACTS
DRAWER: Robert H. Simon
PAYEE/INDORSER: Frucht
INDORSEE/HDC: Ruth Simon
DRAWEE BANK (payable at): Peoples Bank &
Trust Company of PASSAIC
COLLECTING BANK: Hamilton Trust Company of
PATERSON
The note, which was sent to the Federal Reserve
Bank, was presented to PASSAIC for payment
but it was dishonored. The notice of dishonor
was mailed, addressed to each party liable
thereon, in the care of PATERSON. These
notices were received by PATERSON the next
day. Thereupon, the notices were mailed to
Ruth Simon, who failed to collect against the
Robert H. Simon and Frucht, brought an
action against PASSAIC, its cashier, and
PATERSON for negligence
District Court: in favor of PASSAIC et al
Supreme Court on appeal: reserved judgment
ISSUE
WON PASSAIC, its cashier, and PATERSON are
liable as agents because they did not give
sufficient notice
HELD: NO
Ratio The holder of a note taking it to a bank for
collection is familiar with the financial
responsibility of the maker and indorsers, and
can easily disclose the addresses of those to
be charged and request that they be notified
in event of default. In the absence of specific
instructions, the bank need do no more than
promptly report the fact to its principal, and
the principal may then notify those to be
charged.
NEGO - Quevedo 110
Camille Umali
PASSAIC as a mere agent of PATERSON for
effecting collection (sub-agent)
1. bound to make legal demand on promisor of
payment
2. and upon non-payment, to give due notice of
the dishonor to PATERSON
>>to hold PASSAIC to a greater duty would be
most unreasonable because it had not
discounted the paper and presumable knew
nothing of the indorsers or their residences. If
Ruth Simon desired PASSAIC to notify the
indorsers, she could have given SPECIFIC
INSTRUCTIONS (Phipps v Milbury Bank)
PATERSON as mere AGENT for Ruth Simon for
collection
>>knew nothing of their indorsers or their
residences
>>duty as agent fully performed when it gave
TIMELY NOTICE if the dishonor of the note so
she could notify the prior parties. It does not
matter that a notice placed in the mail is not
received
-Section 94 NIL: Where the instrument has been
dishonored in the hands of an agent, he may
either himself give notice to the parties liable
thereon, or he may give notice to his
principal; if he gives notice to his principal,
he must do so within the same time as if he
were the holder, and the principal upon
receipt of such notice has himself the same
time for giving the notice as if the agent has
been an independent holder.
-Mailing of notices to the principal is sufficient to
relieve the agent. Any other rule would cast
too great an obligation upon banks.
Disposition Judgment is reversed.

PEOPLES NATL BANK OF YPSILANTI V DICKS
258 Mich. 441; 242 NW 825 (1932)
~maia~
FACTS
SUBJECT: promissory note
MAKER: Ives
HOLDER: Peoples National Bank (substituted by
Deake et al. as plaintiffs)
INDORSER: Dicks
-Peoples National Bank sued Dicks and Ives for the
promissory note. The note was signed on its face by
Ives and Dicks. Opposite the signatures and directly
opposite Dicks name was stamped the word
indorsed.
-Above the signatures of the parties, there was no
guaranty of payment, no waiver of demand or notice
of non-payment or protest, and no waiver of
extension. Such waiver was on the face of another
part of the note (the back of the instrument).
-there was no presentment of the note for payment to
Ives, no demand of payment made to him, no
dishonor by Ives, no notice of dishonor to Dicks, no
protest on the note. Thus, if Dicks was a joint maker
of the note he is liable. If he is an indorser and is
bound by the waiver printed on the note, he is
likewise liable. If he is a mere indorser, not bound by
the warranty or guaranty printed on the note, he is not
liable.
ISSUE
WON Dicks was liable
HELD: NO
-when the waiver is embodied in the instrument itself
it is binding upon all parties; but when it is written
NEGO - Quevedo 111
Camille Umali
above the signature of an indorser, it binds him
only. Embodied in the instrument means
embodied in the original contract, not in detached
words on the back of the instrument.
-in the construction of negotiable instruments, the NIL
provides that where the signature is so placed
upon the instrument that it is not clear in what
capacity the person making it intended to sign, he
is deemed an indorser.
-further, Sec. 109 provides that notice of dishonor
may be waived, either before the time of giving
notice has arrived, or after the omission to give
notice, and the waiver may be express or implied.
-the NIL has intended to make a distinction between
waivers appearing on the body of the instrument
itself, and those appearing at the back thereof
above the signature of the indorser. An indorser
is not bound in all events by a waiver that is not
embodied in the body of the instrument, but
placed at the back thereof.
-prior to NIL, there was no such distinction. The effect
of a waiver appearing at the back of an
instrument has the same effect as that of one
appearing at the back thereof, i.e. binds all
indorsers. Now, there is a distinction.
-here, Dicks was an indorser, thus he is not bound by
the printed guaranty of payment or waiver of the
note. Nothing indicates that Dicks signed,
accepted, or approved of the printing upon the
instrument. No presentment, demand, or notice
of dishonor was given defendant, thus he is not
bound by the same.

STATE INVESTMENT HOUSE V CA
G.R. No. 101163; Bellosillo: Jan 11, 1993
~da~
FACTS:
SUBJECT: 2 Post dated checks
DRAWER: Nora Moulic
DRAWEE:
PAYEE: Corazon Victoriano
Indorsee: SIHI
-Nora B. Moulic issued to Corazon Victoriano, as
security for pieces of jewelry to be sold on
commission, two (2) post-dated Equitable
Banking Corporation checks in the amount of
Fifty Thousand Pesos (P50,000.00) each who
thereafter negotiated the checks to State
Investment House. Inc. (STATE).MOULIC failed
to sell the pieces of jewelry, so she returned them
to Victoriano before maturity of the checks. The
checks could no longer be retrieved since they
had already been negotiated. Before their
maturity dates, MOULIC withdrew her funds from
the drawee bank.
-The checks were dishonored for insufficiency of
funds. On 20 December 1979, STATE allegedly
notified MOULIC of the dishonor of the checks
and requested that it be paid in cash instead,
although MOULIC avers that no such notice was
given her.
ISSUE
WON MOULIC is liable for the value of the checks
even if STATE failed to give her notice of
dishonor
HELD: YES.
ELLENBOGEN V STATE BANK
197 N.Y. Supp. 278 (1922)
~bry_sj~
FACTS
SUBJECT: draft
DRAWER: State Bank
DRAWEE: Polish National Loan Bank
PAYEE: Meyer Ellenbogens agent
-Ellenbogen sued to recover $1650 on a draft drawn
by defendant to the order of her agent for the
equivalent of Polish money of that sum.
Ellenbogen alleged that the check was duly
presented to the Polish National Bank but said
bank refused payment for the reason that the
defendant had no money on deposit in the
bank with which to pay the check.
-The trial court dismissed the complaint because it
was not pleaded that the draft was protested
citing section 260 of the Negotiable Instruments
Law, which provides that a foreign bill of
exchange, appearing on its face to be such,
which is dishonored for nonpayment, must be
duly protested for nonpayment, and that if it is not
NEGO - Quevedo 112
Camille Umali
-The fact that STATE failed to give Notice of Dishonor
to MOULIC is of no moment. The need for such
notice is not absolute; there are exceptions under
-Sec. 114 of NIL: When notice need not be given
to drawer. Notice of dishonor is not required to be
given to the drawer in the following cases:
(a) Where the drawer and the drawee are the same
person;
(b) When the drawee is a fictitious person or a person
not having capacity to contract;
(c) When the drawer is the person to whom the
instrument is presented for payment:
(d) Where the drawer has no right to expect or require
that the drawee or acceptor will honor the
instrument;
(e) Where the drawer had countermanded payment.
-Indeed, MOULIC'S actuations leave much to be
desired. She did not retrieve the checks when
she returned the jewelry. She simply withdrew
her funds from her drawee bank and transferred
them to another to protect herself. After
withdrawing her funds, she could not have
expected her checks to be honored. In other
words, she was responsible for the dishonor of
her checks, hence, there was no need to serve
her Notice of Dishonor, which is simply bringing
to the knowledge of the drawer or indorser of the
instrument, either verbally or by writing, the fact
that a specified instrument, upon proper
proceedings taken, has not been accepted or has
not been paid, and that the party notified is
expected to pay it.
so protested the drawers and indorsers are
discharged.
ISSUE
WON the lower court erred in holding that protest is a
condition precedent to recovery against the
drawer
HELD: NO.
-Section 185 of the NIL provides that notice of
dishonor is not required to be given to the
drawer, if the drawer has no right to expect or
require that the drawee or acceptor will honor the
instrument and under Section 267 (which is only
required in the case of foreign bills of exchange)
is dispensed with by any circumstances which
would dispense with the notice of dishonor.
Further, under Section 139, presentment for
payment is not required, in order to charge the
drawer, where he has no right to expect or

require that the drawee or acceptor will pay the
instrument.
TAN LEONCO V GO INQUI
Johnson; 8 Phil. 531 (Sept 13, 1907)
~mel~
FACTS
SUBJECT: bill of exchange worth P800
DRAWER: Go Inqui, as representative of the plaintiffs
mercantile co, "J.C.,"
DRAWEE: Lim Uyco, of Manila.
PAYEE: Tan Leonco
-In the year 1897 the plaintiff left the Philippine for
China, and prior to his departure turned over to
Tan Tonguan, for his management, the
plantations of abaca (hemp) which the plaintiff
then possessed in this province. While the
plaintiff was in China, Tan Tonguan worked the
abaca and obtained 800 pesos worth of fiber,
which he caused to be stored, by direction of the
defendants, in a warehouse in Buhang, and after
storing the draft or check in question, handing it
to the plaintiff, who in the mean time had returned
from China. The plaintiff then, desiring to leave
again for China, presented the draft for payment
in Manila, but as the defendants had suspended
the payment of the same, the plaintiff was unable
to collect the amount thereof. When the said
abaca was stored by Tan Tonguan in Buhang it
became the property of the defendants (although
it did not go through their hands), and on the face
of the draft they acknowledge having received
the amount of said draft. Therefore, it is evident
that the defendants can not alleged now that they
had not received the amount of the said draft.
-In the years 1896 and 1897 the plaintiff entered into
an agreement with the then head of the firm, of
J.C., wherein it was agreed that the plaintiff could
transfer the shop at San Isidro to the Chinaman
Tan Tonguan, and the shop of Buhang tot he
Chinaman Lim Joco and Tim Bico; and by reason
by such transfers it was agreed between them
that the said Chinamen to whom the two should
had been transferred would become liable for the
debt of the plaintiff directly in connection with the
said two shops, one being for the sum of about
600 pesos and the under these conditions, the
plaintiff can not now be held to the liable for the
2,390 odd pesos claimed by the defendants in
their counterclaim; they must look for payment of
this sum to the Chinamen in whose favor the two
shops were transferred.
-When the draft in question was presented by the
plaintiff in Manila for payment, having failed to
collect the amount,. he did not cause the protest
to be drawn up in the manner provided by the
Code of Commerce. Whether this draft or check
is considered as a bill of exchange, it is my
opinion that said draft or check should the plaintiff
NEGO - Quevedo 113
Camille Umali
-It follows that neither presentment nor dishonor was
necessary in light of the facts pleaded by the
plaintiff and therefore, protest was not required.
should therefore be relieved from the formalities
of the protest for want of payment of the same,
as provided for with regard to bills of exchange.
The lower court indicated a sentence in the
cause against the defendant and in favor of the
plaintiff for the sum of 800 pesos, Mexican
currency, or its value in the Conant, at the rate of
P1.30, with interest 6 per cent from 3d day of
march, 1901, and costs, including the fees of the
arbitrators appointed at its request of the
respective the counterclaim presented by the
defendant.
ISSUE
1. WON defendant received the hemp so as to
constitute consideration for the bill of exchange.
2. WON the plaintiff has a right to recover upon said
bill of exchange without the same having been
duly protested.
HELD
1. YES
-It is not disputed that the warehouse in which the
hemp was deposited was the warehouse of the
defendant. The hemp became the property of the
defendant upon the delivery thereof in the
warehouse of the defendant (arts. 1462 and
1463, Civil Code), and was property of the
defendant at the time a complete delivery of the
said abaca to the defendant, and the loss
occuring thereafter,. without any fault of the
plaintiff, was loss of the defendant . We that the
delivery of the hemp as above stated was duly
made to the defendant and constituted a valuable
consideration for the said bill of exchange or
check.
2. YES
-It was alleged that he said bill of exchange, after
being presented to the drawee in Manila, was not
protested and that there is some question of the
right of the p[plaintiff to recover upon said bill of
exchange without the same having been duly
protested. The action was not brought upon the
bill of exchange; the bill of exchange was used
only as evidence of the indebtedness. We
believe, however, that inasmuch as the
defendant had himself ordered the drawee not to
pay the said bill of exchange, that protest and
notice of nonpayment under these conditions was
unnecessary in order to render the drawer, or
defendant in this case, liable.
Disposition: The judgment of the lower court is
affirmed

BISHOP V DEXTER
2 Conn. 419 (1817)
~eva~
FACTS
Maker: Wittlesey
Payee/First Indorser: Dexter
Indorsees: Converse, then indorsed to Judd, indorsed
finally to Bishop
-Dexter indorsed a negotiable note to Converse after
it was due
-after indorsement by Dexter, no demand was ever
made of Whittlesey and no notice ever given to
Dexter.
-Bishop claims he has a right to recover of Dexter on
his indorsement, the note never having been paid
by Whittlesey
ISSUES
1. WON Dexter is liable.
2. WON when a note is indorsed by the payee after
due, a subsequent indorsee without knowledge
that the first indorsement was made after the
note was due, has a right to presume that a
proper demand had been made and notice given
when it fell due.
HELD
1. NO.
The indorsement of a bill or note after due is
equivalent to drawing a new bill payable at sight;
and demand must be made by the indorsee of
the drawer of the bill, or maker of the note, and
notice given to the indorser, as in cases of bills
payable at sight. It appears that no demand was
ever made of Whittlesey, by any of the indorsees
NEGO - Quevedo 114
Camille Umali
of the note, and no notice ever given to the
defendant for non-payment; of course, he
became discharged of any liability on his
indorsement.
2. NO.
To hold that the indorsee has a right to presume is not
only repugnant to the principle that the
indorsement after due is equivalent to drawing a
new bill, and must be proceeded with as such;
but would lead to the practice of the grossest
fraud, for the first indorsee might neglect to make
demand, and give notice, by which the liability of
his indorser would be discharged, and then, by a
subsequent indorsement, he might create a new
right in his indorsee to recover against the first
indorser, after the note had been lost by his
negligence.
-That the note had been put in suit would not excuse
demand and notice.
**With respect to the necessity of demand on the
maker by the indorsee, the reasonable notice to
the indorser, there can exist no serious question.
A bill may be negotiated after it has become due.
The indorsement of it afterwards is equivalent to
the act of drawing a bill payable at sight. The
indorser is a new drawer, and has the right to
insist, that the same steps should be resorted to
for the collection of it, as he had been the drawer
of the bill originally. By drawing, he incurs the
same legal obligation.

BINGHAMPTON PHARMACY V FIRST NATL BANK
131 Tenn. 711, 176 S.W. 1038, 2 A.L.R. 1377 (1915)
~jat~
FACTS
-Binghampton Pharmacy and Kilpatrick brothers W.A.
Kilpatrick and L.H. Kilpatrick (makers) executed a
note payable to the order of ourselves, due on
Dec.29, 1912 and PAYABLE AT the Chickasaw
Bank and Trust. The note was indorsed in blank
and discounted at said Chickasaw Bank, which
later rediscounted the same note at First Natl.
Bank before it became due.
-First Natl. Bank did not present the note for payment
at Chickasaw Bank on Dec.29 and instead
presented the note on Jan.1, 1913.
-Because Chickasaw Bank failed to pay, First Natl.
Bank demanded payment from the makers who
declined, their defense being that they are
discharged from liability on the note because of
the omission of the First Natl. Bank to present it
for payment at the Chickasaw Bank, where the
note was made payable, when it fell due.
-First Natl. Bank instituted action against the makers
in the lower court, which decided in its favor. The
makers then filed this certiorari, invoking chapter
94 of the Tennessee Act (Sec.87 NIL) as their
defense. They argue that Sec.87 puts upon the
holder of a note payable at a bank the same
duties as those upon the holder of an ordinary
check.
ISSUES
WON Sec. 87 should be interpreted to mean that a
note made payable at a bank requires
presentment for payment in order to charge the
NEGO - Quevedo 115
Camille Umali
maker, failure of which discharges the maker
from liability
HELD: NO.
Sec.87 should be interpreted in light of the other
provisions of the NIL.
-Although Sec.87 authorizes a bank, at which an
instrument is made payable, to pay the same for
the account of the principal debtor, its language
must not be so expanded to mean that it converts
the maker into a drawer.
-The duty of the holder of a note toward the maker
cannot be assimilated to the duty of a holder of a
check toward the drawer:
(1) The maker is primarily liable, while the drawer is
only liable after dishonor.
(2) Sec.70 excuses presentment of the instrument as
to the maker of a note, but the same does not
apply to the drawer of a check or bill of exchange
(3) Sec.186 places an absolute duty upon the holder
of a check to present the instrument for payment
at the place where it is payable, within a
reasonable time otherwise the drawer is
discharged from liability. No such duty rests upon
the holder of a note with respect to presentment
because the maker of a note, by the terms of the
instrument, is absolutely required to pay. His
obligation as the maker is not a conditional
promise to pay only at a special place, but is a
promise to pay generally, even though a place of
payment is named.
Disposition Petition for certiorari denied.
 NEGO - Quevedo 116
Camille Umali

CHAPTER VI: DISCHARGE

FOX V KROEGER
119 Tex. 511, 35 S.W. (2d) 679 (1931)
~kooky~

FACTS: instrument, but payment by a party secondarily

SUBJECT: promissory note for $769.03, payable 12
mos. from June 28, 1921
MAKERS: Mrs. C.M. Fox as principal and J.H.
Kroeger as surety
PAYEE: Levi State Bank & Trust Company
-Mrs. Fox as principal and Kroeger as surety
executed the above note. Mrs. Fox died before its
maturity. At maturity, on agreement with the
payee, Kroeger executed and delivered his own
note of the same amount to the payee. The
payee bank then assigned the principal note to
Kroeger. More than two years later Kroeger sued
BJ Fox, executor of Mrs. Foxs estate.
ISSUE:
WON the payment of Kroeger as surety discharged
the obligation
HELD: NO
-Under the Texas statute (Sec 119 and 121 taken
together), the payment by the principal debtor or
by the party accommodated discharges the
liable, other than the principal debtor or party
accommodated, does not extinguish or discharge
the debt. By sec 121, the party accommodated is
excluded from those secondarily liable, payment
by whom does not discharge the instrument. The
statute requires payment by the principal debtor
to discharge a negotiable promissory note, and
that the payment thereof by the surety does not
discharge the obligation.
Disposition Affirmed.
NOTE: the other issue in the case is regarding the
right of the surety to collect from the principal
what he has paid the creditor. Court held: where
the surety pays the debt of the principal, he has
his election to either pursue his legal remedies
and bring an action on an assumpsit, or the
obligation implied by law in his favor for
reimbursement by the principal; or he can
prosecute an action on the very debt itself, and in
either event he stands in the shoes of the original
creditor as to any securities and rights of priority.

EQUITABLE BANKING CORP V IAC
G.R. No. L-74451, May 25, 1988, 161 SCRA 518
~aida rose~
FACTS
-In 1975 Casals (who represented himself as general
manager of Casville Enterprises, a business
engaged in processing and procurement of
lumber products) went to Edward J. Nell Co. and
told the companys sales engineer Claustro of his
interest in purchasing a Garrett skidder, one of
the many merchandise the company was selling.
-Casals was referred to Javier, Nells EVP, who asked
for cash payment for the skidders. Casals said
that Casvile had a credit line with Equitable Bank.
Javier then agreed to have two units of skidders
paid by way of domestic letter of credit instead of
cash. Each unit was to cost P485,000. The
domestic letter of credit was to be payable in 36
months and was to be opened within 90 days
after date of shipment of the skidders. The first
installement was to be due 180 days after
shipment and interest was pegged at 14% p.a.
-Casals requested that one unit be delivered to
Cagayan de Oro before April 24, 1976 together
with all its accessories. The letter of credit was to
be opened on or before June 30, 1976. The
skidder was shipped on May 3.
-June 15, 1976 Casals handed Nell Co. a check
amounting to P300,000 postdated August 4,
1976 followed by another check with the same
date. Nell Co. considered the checks as partial
payment for the skidder or as reimbursement for
the marginal deposit due from Casals.
-Casals informed Nell Co. that its application for a
letter of credit had been approved by Equitable
but informed the company that a sum of
P400,000 was needed to stand as collateral in
favor of Equitable. The amount include P100,000
to clear the title of the Estrada property which
was to act as security for the trust receipts issued
by the bank. To facilitate the transaction, Nell
Co. issued a check for the said amount in favor of
Equitable even if the marginal deposit was
supposed to be produced by Casville.
-Casals wrote Equitable to apply for two letters of
credit (an on sight letter of credit for P485,000, a
36-month letter of credit for P606,000 and cash
marginal deposit of P300,000) to cover its
purchase of the skidders. The skidders were to
be mortgaged as security. The bank responded
favorably, stipulating a required 30% cash margin
deposit, a real estate collateral and chattel
mortgage of the equipment.
-Casville sent three postdated checks to Nell Co.
attached to a letter informing the latter of the
bank requirements. The cash margin deposit
was to amount to P327,300 and adding the
P100,000 needed for the Estrada property, the
NEGO - Quevedo 117
Camille Umali
total amount due to Equitable was P427,300.
The postdated checks from Casville were
intended to cover the checks issued by Nell Co.
to Equitable. The postdated checks amounted to
P427,300.
-Nell Co. issued a check worth P427,300 payable to
Equitable Bank. The check was made payable to
the order of Equitable Banking Corp. A/C of
Casville Enterprises. The check was sent to
Equitable through Casals. Casals deposited the
check in Equitable Bank and the teller accepted it
as deposit in Casals checking account. Casals
then withdrew the amount deposited.
-Upon presentation for encashment, Nell Co.
discovered that the three checks amounting to
P427,300 were all dishonored for having been
drawn against a closed account. Nell Co.
checked the status of the letter of credit and was
informed by Equitable that no letter of credit had
been opened and that the entire amount of
P427,300 had been withdrawn.
-Casals and Casville recognized their liability towards
Nell Co. so they assigned the Garrett skidder to
the latter for the amount of P450,000 as partial
satisfaction.
-In determining the liability of Equitable Bank to Nell
Co., the trial court held that Casals, Casville and
Equitable Bank were solidarily liable to Nell Co.
for the amount of P427,300 erroneously credited
by Equitable to Casvilles account.
ISSUE
WON Equitable is liable to Nell Co.
HELD: NO
-The check was patently ambiguous. By making the
check read Pay to Equitable Banking Corp.,
order of A/C of Casville Enterprises, the payee
ceased to be indicated with reasonable certainty.
As worded it could be accepted as deposit to the
account of the party named after the symbols A/C
or payable to the bank as trustee or as agent for
Casville Enterprises with the latter being the
ultimate beneficiary. The ambiguity was to be
construed against Nell Co. who caused the
ambiguity.
-The check was also initially negotiable and neither
was it crossed. The crossing of the check and
the stamping of the words non-negotiable were
made by the bank and not by Nell. It simply
meant that the same check would thereafter be
no longer negotiated.
-Nells own acts and omissions were the proximate
causes of its own defraudation.
Disposition Petition granted.

IN RE HARNAUGHS ESTATE
320 Pa. 209, 182 Atl. 394 (1936)
FACTS
SUBJECT: P/N in the sum of $7,677.17, due April1,
1919
MAKER: Decedent
PAYEE: Flora Moore, administrator of Peyton
Harbaugh
INDORSEE: Jessie P. Harbaugh
-Peyton, claimant and decedent were all children of
Flora Moore.
ISSUE
WON the maker of a negotiable instrument who
makes payment to the payee after the latter,
before maturity, has indorsed the note to another,
may be relieved of liability on the note if evidence
is received showing that the payee acted as the
indorsees agent or that payment was in fact
received by the indorsee.
HELD: YES.
-Payment to the payee of a negotiable instrument
when title and possession of the instrument has
passed to another before maturity will not protect
the maker.
NEGO - Quevedo 118
Camille Umali
-If the holder receives payment through an agent or
the surrounding circumstances show that money
in discharge of the instrument actually reached
his hands he cannot recover merely because he
retains possession of the instrument.
-In this case, there is no testimony on record to show
agency and therefore appellee, to sustain her
position, must show that the indorsee received
the money in discharge of the note.
-Payment is always an affirmative defense and the
burden of proving it rests on the party asserting it.
It must be shown by preponderance of evidence.
-The auditor and the court below found that the
claimant indorsee holder had received payment
of the note in question.
-April 4, 1919: decedent gave a check to Flora M.
Moore for $13, 249. 40 which included the
amount due on the note and certain other items
payable by decedent to Flora Moore.
-The findings of fact of an auditor will not be disturbed
unless they are unsupported by the evidence.
Disposition Decision affirmed.

JONES ADMRS V COLEMAN
121 Va. 86, 92 S.E. 910 (1917)
FACTS
SUBJECT: negotiable promissory note for $500,
allegedly dated 1 Jan 1915, payable at Bank of
Brunswick, Lawrenceville, Virginia, 365 days after
date. Said note waives the benefit of the
homestead exemption.
MAKER: Reps Jones, now deceased
PAYEE: Kate D. Coleman, Jones domestic servant
for 15-16 yrs
-Kate presented his claim against WR Jones and Jack
Shell, administrators of [the estate of] Reps
Jones. She moved for judgment on the basis of
the notice she filed in court. [motion for judgment
on the pleadings? ^_^]
-Jury was waived. Case was submitted to TC judge.
-To sustain the motion, Kate presented a mutilated
paper, upon which there was neither date nor
signature; both apparently destroyed by burning.
The paper originally was a printed blank form of a
negotiable instrument note, payable at the bank
of Lawrenceville. The mutilated remnant shows
that the figures 500 and 365 as well as the
name Kate D. Coleman and the words five
hundred had been inserted in ink. Evidence
showed that these words and figures were written
by Reps Jones himself.
-Kates brother Beverly (an ignorant man) gave a
vague and unsatisfactory testimony re: existence
of the subject note. He testified that sometime in
1914 he saw in Kates room in a sewing machine
drawer a note for $500 with Reps Jones name on
it, and that after Jones death, Kate showed him a
NEGO - Quevedo 119
Camille Umali
mutilated envelope w/ the subject mutilated
(partly burned) paper.
-There was no attempt to explain or account for the
mutilation of the paper.
-TC judge rendered judgment in favor of plaintiff Kate
Coleman.
ISSUE
WON plaintiff may recover on the basis of the
mutilated note
HELD: NO.
-A cancellation made unintentional[ly] or under a
mistake, or w/o the authority of the holder is
inoperative; but where an instrument or any
signature thereon appears to have been
cancelled, the burden of proof lies on the party
who alleges that the cancellation was made
unintentionally or under a mistake or without
authority. [Sec. 123, NIL]
-It is assumed that the date and the signature were
originally upon the paper presented. There was
no explanation why the same have been
destroyed by burning. The presumption is that
the burning was intentional and done for the
purpose of cancelling the instrument. This
presumption can only be overcome by evidence
showing that such burning was done
unintentionally, or under a mistake, or without
authority. Plaintiff failed to sustain this burden.
Disposition Judgment reversed. Kates motion
dismissed.

MANCHESTER V PARSONS
75 W. Va. 93, 84 S.E. 885 (1915)
FACTS
SUBJECT: promissory note executed on Sept. 33,
1910, for $800.
MAKER: L.W. Parsons
PAYEE: Burton & Co. indorsed to Manchester
-L.W. Parsons executed his negotiable note on Sept.
33, 1910, for $800 payable to the order of Burton
& Co., 18 months from date, and delivered the
same to the payee for value.
-The note was negotiated to Manchester (plaintiff), for
value about Nov. 1, 1910.
-June 3, 1911: Parsons sold and delivered to the
payee some Percheron Colts for $1,675, with the
understanding between the parties that this
transaction was to pay the note, and the balance
was to be paid for the execution and delivery by
Burton & Co. of their note payable to Parsons.
-Manchester is suing Parsons for payment. Parsons
put up the defense of payment.
ISSUE:WON there was discharge (payment) of the
instrument.
HELD: NO.
-Negotiable paper in the hands of a holder in due
course is not discharged by payment made to his
transferor, either before or after the transfer.
-The uncontradicted testimony of L.A. Burton (the
surviving partner of Lee Whorton) is that it had
been indorsed to Manchester, for value, on
November 1, 1910, and therefore the payment to
the original holders did not discharge it. The
delivery of the Colts was on June 3, 1911, almost
a year after the indorsement of the note to
Manchester.
SCHWARTZMAN V POST
94 App. Div. 474, 84 NYS 922, 87 NYS 872 (1903)
FACTS
-Defendant Post executed a note for $5,000 payable
to his own order on demand, indorsed by him, his
father and by defendant Postawalsky. The note
was delivered to plaintiff Schwartzman in
payment of his interest in a partnership of which
he & Postawalsky were members.
-Subequently, Post paid $2,750, & a 3rd party paid
$500. The payment was made on the condition
that the note for $5,000 be surrendered to him.
-Schwartzman sued Post for the balance due on the
note, but as Post had possession of the same, he
did not allege that he was the holder thereof. At
the conclusion of the case, defendant moved to
dismiss the complaint on the ground that the
surrender of the note to defendant constituted a
discharge thereof.
ISSUE
WON the instrument has been discharged
HELD: YES
NEGO - Quevedo 120
Camille Umali
-Sec. 119 of the NIL describes how a note may be
discharged. Subsection 4 reads by any other act
which will discharge a simple contract for the
payment of money.
-This provision must be interpreted with reference to
the general purpose of the NIL. Reading Sec. 4, it
is apparent that it was never the legislative intent
to make a radical change in the general law as
would be brought by the literal interpretation
argued by Parsons. The legislature did not
contemplate making so vital a change in the law,
as to permit equities between the original parties
to a negotiable instrument to defeat the title of an
innocent holder for value in due course.
-The acts which will discharge a simple contract for
payment of money, in order to effect a discharge
of negotiable paper, must be necessarily limited
to such acts as relate to and affect the holder of
the paper demanding payment of it. It does not
include a holder in due course.
-It would injuriously affect the value of commercial
paper, by putting it on a plane with simple
contracts for the payment of money.
-The elements constituting what a holder in due
course is, and the rights of an HDC must be
considered in construing Sec. 119. The rights of
a bona fide assignee of such a note, in due
course, are not affected by the equities of the
maker.
-Payment by Parsons to Burton & Co. before the note
became due, whether before or after they had
negotiated it, could not defeat collection by an
innocent bystander for holder for value who
acquired it in due course.
Disposition Judgment is affirmed.
Ratio Subdivision 5 of Section 200 of the Negotiable
Instruments Law provides that a negotiable
instrument is discharged when the principal
debtor becomes the holder of the instrument at or
after maturity in his own right.
Reasoning Post was the maker of the note, &
primarily liable thereon. It was surrendered to
him, & he became the holder thereof without
fraud or mistake, in his own right.
DEFINITIONS:
Holder Sec. 2: Holder means the payee or indorsee
of a bill or note who is in possession of it, or the
bearer thereof.
Person Primarily Liable on Instrument Sec. 3: The
person primarily liable on an instrument is the
person who, by the terms of the instrument, is
absolutely required to pay the same.
In his own right merely excludes such a case as that
of a maker acquiring the instrument in purely a
representative capacity.
Disposition Judgment reversed.

McGLYNN V GRANSTROM
168 Min 164, 210 NW 892 (1926)
~monch~
FACTS
SUBJECT: Promissory note
MAKER: not named
PAYEE: McGlynn
INDORSERS: Granstrom
-The action was brought by payee McGlynn against
indorser Granstorm for recovery of the note.
McGlynn denied liability and said that the payee
was a party to an oral contract between the
maker and third parties which discharged the
maker from liability. And according to Sec 120 of
the NIL, if the maker is discharged, so is the
indorser.
-McGlynn relies on Sec 122 of the NIL, saying that
such renunciation must be made in writing and
thus the contract did not have an effect of
releasing the maker from its obligation. There
was also no delivery of the note to the maker.
-The lower court ruled in favor of the indorser.
ISSUE
WON the oral contract released the maker (and thus
the indorser too)
HELD: YES
-The requirement of writing in Sec 122 pertains only
to renunciation. It does no apply to Sec 119 and
120 which talks about discharge.
Reasoning
-Sec 122, which speaks of renunciation, should be
distinguished from Sec 119 and 120, which
speaks of discharge. Since renunciation and
discharge are separated, it suggests that one is
different from the other. Under S122,
renunciation should be in writing. In S119 and
NEGO - Quevedo 121
Camille Umali
120, no requirement exists. If there was an
intention to apply the requirement of writing to
S199 and 120, why the need to change the
terminology between the two?
-Examining the instances in S119 and S120, it would
be radical and impractical to require writing in the
discharge of the instrument.
-History: French law - obligation by a bill of exchange
could be voluntarily remitted by the holder without
consideration. The principle was approved by
Foster v Dawber and it was held there that it
applies to bills and notes. It was adopted by the
English Bills of Exchange Act, where the written
requirement was added. In that form and
meaning it came to our uniform statute. That
meaning cannot be expanded without impringing
upon the intended effect of other provisions of the
statute, particularly S119 and S120. So, we are
constrained to hold that the renunciation, which
under S120 must be in writing, is one
accomplished by the unilateral act of the holder.
Ordinarily, but not always, it will be without
consideration.
-Gorin v Wiley: S122 does not apply to novation which
discharged the makers of a note.
-Hall v Wichita: S122 inapplicable to an oral novation.
S122 intended to deal only with the formal and
express release of common law while Sec 119
was intended to continue in effect other
recognized methods of discharging obligations of
this character
-In these cases, it can be seen that the requirement in
S122 was intended to apply only to renunciation
and not extend to discharge in S199 and S120.

McCORMICK V SHEA
99 NY Supp. 467 (1906)
~ice~
FACTS
SUBJECT: Promissory Note
MAKER: Thomas Shea
PAYEE: John McCormick
INDORSER: Annie Shea
-Before maturity Annie Shea as indorser was
cancelled through the representative of the
attorney of Shea in the presence of McCormick.
Defendant claims that the cancellation was part
of their claims against each other while plaintiff
claims that the cancellation was not authorized
and that there was no consideration for such
cancellation. Also, plaintiff claims that even if he
did agree, the effect would only be to release the
indorser as a person secondarily liable.
ROBERTS V CHAPPELL
63 Ohio Apple 397, 26 NE 2d 930
~rean~
FACTS
SUBJECT: Promissory note
MAKER: George Daily, Audrey Daily, Lewis Daily
PAYEE/INDORSER: Chappell
HOLDER: Roberts
-George Daily, Audrey Daily, Lewis Daily executed a
note for S237 payable to the order of Chappell.
The latter indorsed it to Roberts. Upon
presentment, the note was dishonored. Roberts
sued Chappell
-Defense of Chappell: No claim against the estate of
Lewis Daily (now dead) was filed by Roberts. The
estate has now been administered and closed.
Roberts should have presented the note to the
administrator. Since he failed to do so, Chappell
should be discharged.
-Chappell bases his claim on S8225 of the General
Code which says that a person secondarily liable
on the instrument is discharged by the discharge
of a prior party.
NEGO - Quevedo 122
Camille Umali
ISSUE
Who bears the burden of proving the cancellation
without authority?
HELD
-A cancellation made unintentionally or under a
mistake or without the authority of the holder is
inoperative; but where an instrument or any
signature thereon appears to have been
cancelled, the burden of proof lies on the party
who alleges that the cancellation was made
unintentionally or under a mistake or without
authority.
-The burden of proof was with the plaintiff
Disposition: Judgment affirmed.
ISSUE
WON Chappell was discharged
HELD: NO
-The discharge of a prior party referred to is a
discharge by an act of the holder and not a
discharge accomplished by operation of law.
Reasoning
- Romero case: discharge in the NIL contemplates
some affirmative act by the holder and does not
contemplate passive conduct. This interpretation
is in accord with the Ohio law relating to
suretyship. Under such law, mere failure to claim
of a creditor against the estate does not
discharge the surety. The rule relating to sureties
becomes important since the rights and duties of
sureties correspond to that of indorsers.
-The words discharge by a prior party must be given
its common and accepted meaning. Prior to the
enactment of the law, such meaning refers to a
discharge by an act of the holder and not a
discharge accomplished by operation of law.

CORLEY V FRENCH
154 Tenn. 672, 294 S.W. 513 (1927)
~eva~
FACTS
SUBJECT: Note for $2,500
MAKER: Volunteer Mfg. Co.
PAYEE-HOLDER: Corley
INDORSERS: French Nichol, et al.
-Note contained a waiver of presentment and notice,
and was made payable at the American National
Bank. The note was not presented at this bank
on the day of maturity nor thereafter. The maker
had funds on deposit in this bank at the date of
maturity of the note sufficient to pay it. The maker
was later adjudged bankrupt.
-Corley sued French and other indorsers.
-Defense: discharge by constructive tender of
payment and by laches in failing to collect from
the maker.
-Nichol was held liable. The other indorsers were
discharged in bankruptcy.
ISSUE
WON French is liable on the note as indorser.
HELD: YES.
-While the effect of the waiver was to make the
indorser liable without the necessity of
presentment, French did not become technically
or strictly primarily liable (CA found French
liable saying that he became primarily liable).
French continued to be secondarily liable, but
without the right to interpose the defense based
upon want of presentment, notice and protest.
His obligation by virtue of the waiver became
absolute and unconditional with respect to
defenses so grounded.
-Every indorser who has waived presentment is liable
to the holder without reference to presentment.
No steps need be taken by the holder upon
maturity to charge the waiving indorser, who
engages that it shall be paid according to its
tenor, without presentment, and whether
proceedings on dishonor be taken or not.
-The Negotiable Instrument Act provides that when
the instrument is dishonored by non-payment, an
immediate right of recourse to all parties
secondarily liable thereon accrues to the holder.
So, without presentment, the holder has his right
of recourse upon dishonor that is failure to pay,
against those primarily liable, and against those
secondarily liable who have waived presentment,
NEGO - Quevedo 123
Camille Umali
or those as to whom, not having so waived, the
prescribed steps have been taken.
(ON THE TOPIC)
-Defense insists that he is secondarily liable only,
despite his waiver, in the meaning of this term as
used in Sec.120, by which it is provided that one
so liable only is discharged by a valid tender of
payment made by a prior topic, and that
constructive tender by the maker primarily liable
took place under the provision of Sec.70 which
states that: If the instrument is, by its terms,
payable at a special place and he (the person
primarily liable) is able and willing to pay it there
at maturity, such ability and willingness are
equivalent to a tender of payment upon his part.
-This section is without direct application to a party to
the instrument who has voluntarily waived
presentment of payment. However, in the instant
case, while under Sec70, presentment was not
necessary to charge the maker, if it appears that
the maker had been both able and willing (as
does not appear) to pay the note at the bank
named therein at maturity, a constructive tender
would have accrued as to him, and such tender
might have constituted such a valid tender of
payment made by the prior party as would have
operated to discharge the indorser.
-BUT while there is evidence that the maker had
funds in the bank at the maturity of the note (to
show ability, there is no evidence of
willingness on the part of the maker to have
such application made of its funds of deposit, and
these element must concur to be equivalent to a
tender of payment upon his part.
-Sec.87 provides: Where the instrument is made
payable at a bank, it is equivalent to an order to
the bank to pay the same for the account of the
principal debtor thereon. Under this section, it is
both the right and the duty of the bank to pay the
note from the funds of the maker on deposit with
it, which discharged the indorser. In the present
case, the bank has the right to so apply its
depositors fund only when the bank is the place
of payment and the payee and holder of the
instrument as well. Thus, no tender was made by
or on behalf of the maker primarily liable on the
instrument which operated to discharge the
indorser.
Dispositive CA affirmed.

MAGLIONE V PENTA
266 Mass. 413, 165 N.E. 424 (1929)
~javi~
FACTS
SUBJECT: a note secured by mortgage
MAKER/MORTGAGOR: unnamed
PAYEE /INDORSER/DEFENDANT/: PENTA
INDORSEE/HOLDER/PLAINTIFF:MAGLIONE
-Penta is a payee of a note secured by mortgage.
Penta indorsed the note and assigned the
mortgage to Maglione. A subsequent foreclosure
(on the mortgage) was instituted by Maglione.
But he dropped the foreclosure suit (mortgagor
paid $300).
-Some months later, Penta inquired of Maglione
whether the note and mortgage have been paid.
Maglione said that he had a satisfactory
arrangement with the maker-mortgagor.
-Maker defaulted so Maglione sued indorser Penta
-Jury found that Maglione had entered into a valid and
binding agreement with maker to extend deadline
of note
NEGO - Quevedo 124
Camille Umali
ISSUE
WON Penta being secondarily liable for the note, is
discharged from liability in lieu of Magliones
agreement with maker-mortgagor
HELD: YES
-If the plaintiff made a valid and binding agreement
with the makers of the note extending the time of
payment without the knowledge and consent of
the surety, the surety is thereby discharged.
-As an indorser, Penta was secondarily liable. But the
jury found that there was a valid and binding
agreement between Maglione and the makers
thereby discharging Penta from his liability.

CHAPTER VII: OTHER FORMS OF COMMERCIAL PAPER
LEE, MICO METALS CORP v. CA and PBC
375 SCRA 579; De Leon, Jr; Feb 1, 2002
FACTS
-A petition for review of the decision of the CA
ordering defendants-appellees jointly and
severally to pay plaintiff PBCom a certain sum
arising from ordinary loans, letters of credit and
trust receipt transactions granted by the plaintiff
plus legal interest until fully paid.
-On March 2, 1979, Charles Lee, as President of
MICO wrote private respondent Philippine Bank
of Communications (PBCom) requesting for a
grant of a discounting loan/credit line in the sum
of Three Million Pesos (P3,000,000.00) for the
purpose of carrying out MICOs line of business
as well as to maintain its volume of business.On
the same day, Charles Lee requested for another
discounting loan/credit line of Three Million Pesos
(P3,000,000.00) from PBCom for the purpose of
opening letters of credit and trust receipts.
-On March 26, 1979, MICO availed of the first loan of
One Million Pesos (P1,000,000.00) from PBCom.
Upon maturity of the loan, MICO caused the
same to be renewed, the last renewal of which
was made on May 21, 1982 under a promissory
note. Two more loans to complete the three
million were availed by MICO under the same
terms.
-As security for the loans, MICO through its Vice-
President and General Manager, Mariano Sio,
executed on May 16, 1979 a Deed of Real Estate
Mortgage over its properties situated in Pasig,
Metro Manila.
-On March 26, 1979 Charles Lee, Chua Siok Suy,
Mariano Sio, Alfonso Yap and Richard Velasco,
in their personal capacities executed a Surety
Agreement in favor of PBCom whereby the
petitioners jointly and severally, guaranteed the
prompt payment on due dates or at maturity of
overdrafts, promissory notes, discounts, drafts,
letters of credit, bills of exchange, trust receipts,
and other obligations of every kind and nature,
for which MICO may be held accountable by
PBCom.
-On July 14, 1980, petitioner Charles Lee, in his
capacity as president of MICO, wrote PBCom
and applied for an additional loan in the sum of
Four Million Pesos (P4,000,000.00). The loan
was intended for the expansion and
modernization of the companys machineries.
Upon approval of the said application for loan,
MICO availed of the additional loan of Four
Million Pesos (P4,000,000.00) as evidenced by a
promissory note.
-As per agreement, the proceeds of all the loan
availments were credited to MICOs current
checking account with PBCom. To induce the
PBCom to increase the credit line of MICO,
Charles Lee, Chua Siok Suy, Mariano Sio,
Alfonso Yap, Richard Velasco and Alfonso Co
NEGO - Quevedo 125
Camille Umali
(hereinafter referred to as petitioners-sureties),
executed another surety agreement in favor of
PBCom on July 28, 1980, whereby they jointly
and severally guaranteed the prompt payment on
due dates or at maturity of overdrafts, promissory
notes, discounts, drafts, letters of credit, bills of
exchange, trust receipts and all other obligations
of any kind and nature for which MICO may be
held accountable by PBCom.
-On two occasions, MICO filed with PBCom an
application for a domestic letter of credit. The
corresponding irrevocable letters of credit was
approved. Thereafter, the domestic letters of
credit was negotiated and accepted by MICO as
evidenced by the corresponding bank draft
issued for the purpose. After the suppliers of the
merchandise was paid, trust receipts upon
MICOs own initiative, was executed in favor of
PBCom.
On three occasions MICO applied for authority to
open a foreign letter of credit in favor of various
corporations and thus, the corresponding letter of
credits was then issued by PBCom with cables
sent to the beneficiaries advising that said
beneficiaries may draw funds from the account of
PBCom in its correspondent banks New York
Office. As in past transactions, MICO executed in
favor of PBCom a corresponding trust receipt. In
all the transactions involving foreign letters of
credit, PBCom turned over to MICO the
necessary documents such as the bills of lading
and commercial invoices to enable the latter to
withdraw the goods from the port of Manila.
-Upon maturity of all credit availments obtained by
MICO from PBCom, the latter made a demand
for payment. For failure of petitioner MICO to pay
the obligations incurred despite repeated
demands, private respondent PBCom
extrajudicially foreclosed MICOs real estate
mortgage. Aside from the unpaid balance of Five
Million Four Hundred Forty-One Thousand Six
Hundred Sixty-Three Pesos and Ninety Centavos
(P5,441,663.90), MICO likewise had another
standing obligation in the sum of Four Hundred
Sixty-One Thousand Six Hundred Pesos and Six
Centavos (P461,600.06) representing its trust
receipts liabilities to private respondent. PBCom
then demanded the settlement of the aforesaid
obligations from herein petitioners-sureties who,
however, refused to acknowledge their
obligations to PBCom under the surety
agreements. Hence, PBCom filed a complaint
with prayer for writ of preliminary attachment
before the Regional Trial Court of Manila.
-Petitioners (MICO and herein petitioners-sureties)
denied all the allegations of the complaint filed by
respondent PBCom, and alleged that: a) MICO
was not granted the alleged loans and neither did

it receive the proceeds of the aforesaid loans and
since no loan was ever released to or received by
MICO, the corresponding real estate mortgage
and the surety agreements signed concededly by
the petitioners-sureties are null and void.
-The trial court gave credence to the testimonies of
herein petitioners and dismissed the complaint
filed by PBCom. In ruling for herein petitioners,
the trial court said that PBCom failed to
adequately prove that the proceeds of the loans
were ever delivered to MICO. Hence, inasmuch
as no consideration ever passed from PBCom to
MICO, all the documents involved therein, such
as the promissory notes, real estate mortgage
including the surety agreements were all void or
nonexistent for lack of cause or consideration.
The trial court said that the lack of proof as
regards the existence of the merchandise
covered by the letters of credit bolstered the
claim of herein petitioners that no purchases of
the goods were really made and that the letters of
credit transactions were simply resorted to by the
PBCom and Chua Siok Suy to accommodate the
latter in his financial requirements.
-CA reversed
-Petitioners contend that there was no proof that the
proceeds of the loans or the goods under the
trust receipts were ever delivered to and received
by MICO.
ISSUE: WON the proceeds of the loans and letters of
credit transactions were ever delivered to MICO
HELD: YES
-In civil cases, the party having the burden of proof
must establish his case by preponderance of
evidence. During the trial of an action, the party
who has the burden of proof upon an issue may
be aided in establishing his claim or defense by
the operation of a presumption, or, expressed
differently, by the probative value which the law
attaches to a specific state of facts. A
presumption may operate against his adversary
who has not introduced proof to rebut the
presumption. The effect of a legal presumption
upon a burden of proof is to create the necessity
of presenting evidence to meet the legal
presumption or the prima facie case created
thereby, and which if no proof to the contrary is
presented and offered, will prevail. The burden of
proof remains where it is, but by the presumption
the one who has that burden is relieved for the
time being from introducing evidence in support
of his averment, because the presumption stands
in the place of evidence unless rebutted. Under
Section 3, Rule 131 of the Rules of Court the
following presumptions, among others, are
satisfactory if uncontradicted: a) That there was a
sufficient consideration for a contract and b) That
a negotiable instrument was given or indorsed for
NEGO - Quevedo 126
Camille Umali
sufficient consideration. As observed by the
Court of Appeals, a similar presumption is found
in Section 24 of the Negotiable Instruments Law
which provides that every negotiable instrument
is deemed prima facie to have been issued for
valuable consideration and every person whose
signature appears thereon to have become a
party for value. Negotiable instruments which are
meant to be substitutes for money, must conform
to the following requisites to be considered as
such a) it must be in writing; b) it must be signed
by the maker or drawer; c) it must contain an
unconditional promise or order to pay a sum
certain in money; d) it must be payable on
demand or at a fixed or determinable future time;
e) it must be payable to order or bearer; and f)
where it is a bill of exchange, the drawee must be
named or otherwise indicated with reasonable
certainty. Negotiable instruments include
promissory notes, bills of exchange and checks.
Letters of credit and trust receipts are, however,
not negotiable instruments. But drafts issued in
connection with letters of credit are negotiable
instruments.
-Private respondent PBCom presented the following
documentary evidence to prove petitioners credit
availments and liabilities: Promissory Notes,
Irrevocable letter of credits, drafts, trust receipts.
-The above-cited documents presented have not
merely created a prima facie case but have
actually proved the solidary obligation of MICO
and the petitioners, as sureties of MICO, in favor
of respondent PBCom. While the presumption
found under the Negotiable Instruments Law may
not necessarily be applicable to trust receipts and
letters of credit, the presumption that the drafts
drawn in connection with the letters of credit have
sufficient consideration. Under Section 3(r), Rule
131 of the Rules of Court there is also a
presumption that sufficient consideration was
given in a contract. Hence, petitioners should
have presented credible evidence to rebut that
presumption as well as the evidence presented
by private respondent PBCom. The letters of
credit show that the pertinent
materials/merchandise have been received by
MICO. The drafts signed by the
beneficiary/suppliers in connection with the
corresponding letters of credit proved that said
suppliers were paid by PBCom for the account of
MICO. On the other hand, aside from their bare
denials petitioners did not present sufficient and
competent evidence to rebut the evidence of
private respondent PBCom. Petitioner MICO did
not proffer a single piece of evidence, apart from
its bare denials, to support its allegation that the
loan transactions, real estate mortgage, letters of
credit and trust receipts were issued allegedly
without any consideration.

MERCER COUNTY V HACKETT
US Supreme Court; 1 Wall. 83; 1863
~brian b~
FACTS
SUBJECT: Bonds issued for stock in Pittsburgh and
Erie (Railroad) Company [PEC] payable in 20
years
MAKERS: County of Mercer, Commonwealth of
Pennsylvania
PAYEE: PEC or bearer
BEARER: Hackett
-Legislature of Pennsylvania authorized Mercers
commissioners to subscribe to stock of PEC,
where the railroad if built would pass through
their county and benefit it. The act, however, had
a restriction wherein the bonds to be issued shall
in no case be sold, assigned, or transferred by
the PEC at less than par value.
-Rightly or wrongly w/ or w/o authority the bonds
to the extent of several thousand of dollars were
issued. The instruments were elegantly
engraved, with such external indications as were
calculated to arrest the eye, and through it to
inspire confidence. It was signed by the Mercer
commissioners, attested by their clerk, and
authenticated by the county seal conspicuously
put. It was announced as issued for stock in the
PEC. The pertinent obligatory part, read:
the County of Mercer (Pennsylvania) is indebted
to (PEC) in the full and just sum of ($1k), which
sum said county agrees to pay, (20yrs after
date), to (PEC) or bearer, annually upon
delivery of the coupons severally hereto annexed
the faith, credit and property of the County of
Mercer are hereby solemnly pledged, under the
authority of an act of Assembly of this
Commonwealth
-A number of bonds were obtained, bona fide and for
value paid, by Hackett. And the coupons, being
due and unpaid, Hackett sued the county of
Mercer.
-Circuit Court pointed out the faith, credit and
property part and declared that the
NEGO - Quevedo 127
Camille Umali
instruments were on their face complete and
perfect; exhibiting no defect in form of substance.
ISSUE
WON evidence of fraud practiced by the railroad
company to whom these bonds were delivered,
and by whom they were paid to bona fide holders
for value, or the fact that they were negotiated at
less than their par value, be received to defeat
the recovery of Hackett
HELD: NO
-The species of bonds is a modern invention,
intended to pass by manual delivery, and to have
qualities of negotiable paper; and their value
depends mainly upon this character. Being
issued by States and corporations they are
necessarily under seal. But there is nothing
immoral or contrary to good policy in making
them negotiable, if the necessities of commerce
require that they should be so. A mere technical
dogma of the courts cannot prohibit the
commercial world from inventing or using any
species of security not known in the last century.
When a corporation covenants by these means
and obtains funds for the accomplishment of the
useful enterprises of the day, it cannot be allowed
to evade payment by parading some obsolete
judicial decision that a bond, for some technical
reason, cannot be made payable to bearer.
-The epidemic insanity of the people, the folly of
county ofiicers, the knavery of railroad
speculators are pleas which might have just
weight in an application to restrain the issue or
negotiation of these bonds, but cannot prevail to
authorize their repudiation, after they have been
negotiated and have come into the possession of
bona fide holders
Disposition Judgment affirmed.

MANKER V AMERICAN SAVINGS & TRUST CO
Washington SC, 131 Wash. 430, 230 Pac. 406 (1924)
~mini~
FACTS
SUBJECT: 2 local improvement bonds which were
stolen from the appellants safety deposit box.
The bonds provide that:
- the holders shall have no claim against the city,
except from the special assessment made for the
improvement for which bond was issued
- the city of seattle promises to pay or bearer
out of the fund established by ordinance No.
36562 of said city ( local improvement fund
district No. 3032) and not otherwise
- the holders or owners of this bond shall look only
to said fund for the payment of either the principal
or interest in this bond
HOLDER: respondent bank (American Savings)
-The bonds were stolen and came into the possession
of the respondent bank, which purchased it in
due course of business. The respondent City of
Seattle has the funds ready to pay the bonds.
ISSUE
(Who is entitled to the payment on the bonds,
appellant or respondent bank?)
WON these bonds are negotiable instruments
NEGO - Quevedo 128
Camille Umali
HELD: NO, they are not negotiable instruments.
Therefore the appellant is entitled to payment on
the bonds.
-Negotiable instruments must contain an
unconditional promise or order to pay a sum
certain in money. An order or promise to pay only
out of a particular fund is not unconditional.
Therefore, these bonds, which provide for the
particular fund out of which the bonds are to be
paid, are not negotiable.
-Respondent bank argues that these bonds should be
held negotiable as a matter of public policy,
because large sums of money are now invested
in securities of that sort, and to hold them as non-
negotiable would be to destroy their market
value, and few persons would assume the risk
incident to purchasing these bonds, if they are
not negotiable. The court cannot decide these
questions upon a matter of public policy,
however. Where the law is as plain as it is here,
the decision must be governed by the law.
Disposition The appellant will be entitled to the
amount held by the city of Seattle for the
exctinction of his bonds.

ENOCH V BRANDON
New York CA; 249 N.Y. 263, 164 N.E. 45; 1928
~ricky~
FACTS
SUBJECT: series of bonds for $7,500,000 payable on
Nov1, 1941 to bearer, or, if registered, to the
registered holder. They are all equally secured by
and entitled to the benefits and subject to the
provisions of a trust mortgage and redeemable at
105% and interest at certain dates. The bonds
may become due in advance of maturity in case
of default under the mortgage. The bonds contain
a provision allowing it to be registered in the
usual way, and, except where registered, they
are to be treated as negotiable, and all persons
are invited by the company to act accordingly.
MAKER/ISSUER: The Manitoba Power Company. It
was obliged to create a sinking fund to provide
for its purchase and redemption.
CONTROVERSY: It appears from the disposition of
the case that some of these Manitoba bonds
were purchased in due course from a thief;
hence, the title of the purchaser was put in issue.
The lower court (called the Trial Term) held that
the bonds were negotiable hence the purchaser
in due course may retain them but the Appellate
Division reversed.
ISSUE
WON the bonds are negotiable instruments, hence, a
purchaser in due course from a thief may retain
them.
HELD: YES.
Ratio The NIL deals with the form of the instrument
with what a mere inspection of its face should
disclose. Reference to the paper itself said to be
negotiable determines its character.
Reasoning If in the bond or note anything appears
requiring reference to another document to
determine whether in fact the unconditional
promise to pay a fixed sum at a future date is
modified or subject to some contingency, then
the promise is no longer unconditional. The rule
itself is not a difficult one. The trouble lies in its
NEGO - Quevedo 129
Camille Umali
application to particular facts. There is no
infallible test as to whether there is a modification
of the promise. Because of differences in the
words used, or in the arrangement of paragraphs,
sentences, or clauses, each instrument must be
interpreted by itself. The instrument must be
considered as a whole and when the meaning is
doubtful, the construction most favorable to the
bondholder must be adopted.
-The bonds in this case, speaking of possible
redemption, of acceleration of payment, of a
sinking fund, and notice, it continues: All as
provided in the trust mortgage, to which
reference is hereby made for a description of the
property mortgaged and pledged, the nature and
extent of the security, the rights of the holders of
the bonds with respect thereto, the manner in
which notice may be given to such holders, and
the terms and conditions under which said bonds
are issued and secured.
-There is no modification of the promise to pay made
in explicit terms. The provisions all have to do
with the trust mortgage. They refer to the rights
conferred by it upon the bondholders and limit
and explain those rights. They are speaking
solely of security. It would never occur to a
purchaser, scanning the bonds, that because of
something contained in the mortgage he might be
unable to collect the amount due him. It only
means that the bonds are to be issued not only
upon the general credit of the corporation but
upon the faith of some collateral mortgage.
-The acceleration clause in case of the default, the
privilege given the obligor to redeem before
maturity at certain dates, the obligation to create
a sinking fund or the fact that the bonds are
payable to bearer, or, if registered, to the
registered holder does not affect the bonds
negotiability.
Disposition Decision of the Appellate Division
reversed and that of the Trial Term affirmed.

ARANETA V PHIL. NATL BANK
95 Phil. 160 (1954)
FACTS
-PNB granted Aranetas application for a commercial
letter of credit in favor of Allied National
Corporation for $7,440.
-A draft for $4,013.13 was negotiated by PNBs
correspondent bank in London, Barclays Bank
Ltd., against Aranetas credit. PNB paid Barclays
the amount of the draft.
-By the time the draft matured, the British pound was
devaluated from the rate of $4.0325 to $2.80124.
-On the first business day after the maturity of the
draft, PNB sent Araneta a bill of P33,727.92 and
on the same date Araneta forwarded to PNB a
check for P23,194.37 in full payment of its
indebtedness.
-The check was returned without acknowledgment.
Araneta re-transmitted the check. PNB issued a
receipt stating that it was received as partial
payment and that there was still a P10,533.55
balance.
-PNB debited Aranetas overdraft with the amount of
the balance. Hence, Araneta filed present
complaint.
-CFI dismissed complaint
NATL RICE & CORN CORP V PAN-PHIL SHIPPING
(CA) 51 O.G. No. 11, 5564; Sanchez
FACTS
-The parties entered into contract of purchase and
sale, where Pan-Phil agreed to sell & deliver to
NARIC 850 metric tons of Ecuadorian Fortuna
Canilla rice at US $12.51, per 100 pounds net
shipped weight final, CIF Manila.
-Goods were shipped in good condition fr Ecuador.
-Contract calls for bond of P20K by Pan-Phil in favor
of Naric. In accordance w/ this, Pan-Phil, as
principal, and RF Navarro w/ Julian Salgado
(deceased), as sureties, executed a bond.
Appellants obligated themselves, jointly and
severally, to answer for faithful performance by
Pan-Phil of its obligations.
-The contract also provides that Naric agrees to open
by cable an irrevocable letter of credit (LC)
against full shipping docs w/ certificate of quality
issued by representative of Naric, in favor of
Nicholas Graver & Sons (agent of Pan-Phil), of
California and/or assignee, for $2,579,155.42,
payable in New York negotiation of drafts to
expire not later than Jan 31, 1947.
-Accdg to contract, in case of non-shipment by Nov
30, 1948, except force majeure beyond control of
Pan-Phil, Pan-Phil shall pay/reimburse Naric for
bank commission and miscellaneous banking
charges in connection w/ contract.
-Naric applied to PNB for opening of LC.
-PNB, on same date of contract, arranged w/ and
transmitted by cable to Anglo-California Natl
Bank irrevocable LC No. 25865, payable on sight
against complete shipping docs w/ certificate as
NEGO - Quevedo 130
Camille Umali
ISSUE
WON Araneta should be liable for the value of the
draft under the devauated exhange rate
HELD: NO
-Aranetas application for a commercial letter of credit,
as granted by PNB, is the contract between the
parties.
-Although the plaintiffs application provides for
payment at maturity of the draft, this refers
merely to the time when the plaintiff was bound to
pay, and not to the rate of exchange at which the
draft was drawn and presented or negotiated.
-The application provides that the plaintiff promised
and agreed to pay at maturity in Philippine
currency, the equivalent of any amount that
might be drawn or paid upon the faith of the
plaintiffs credit and that the plaintiff agreed to
reimburse the defendant bank in said manner.
-It is admitted that the PNB actually paid for the draft
in question was P33,727.92. Moreover, the tern
reimburse requires the return of something
paid.
Disposition Appealed judgment is affirmed.
to weight, quality and moisture content of the
rice.
-PNB charged Naric P12,907.77 for the opening of
the LC; PNB debited Narics account.
-Pan-Phil failed to ship the rice.
ISSUE: WON Pan-Phil is liable
HELD: YES
-Naric complied w/ its obligations. Pan-Phil says non-
shipment was due to causes beyond its control
that the rice wasnt shipped bec Nicholas Graver
& Sons relinquished its interest in the LC upon
alleged ground that its terms didnt conform w/
conditions of the contract. But one thing is
certain. The LC is in accord with the contract.
Mere refusal of beneficiary to use LC cant be
force majeur w/in meaning of the law. Pan-Phils
liability to reimburse Naric for bank expenses is
inescapable.
-Pan-Phil claims the LC was subsequently cancelled.
But the LC, being irrevocable and in favor of a
specified party, cant be changed by Naric or the
bank w/o consent of the beneficiary and Pan-Phil.
-Its a banking practice for bank to collect commission
& charges for its svcs in opening of LC
irrespective of WON beneficiary uses the LC.
First, because svcs were actually rendered by
bank in negotiation of LC w/ the banks
addressee at San Francisco and second,
because the minute the said bank cabled the LC
to its correspondent at San Francisco, the former
became exposed to liability thereon until it was
cancelled.

BPI V DE RENY FABRIC INDUSTRIES
35 SCRA 256; Castro; Sept 16, 1970
~del~
FACTS
-On 4 different occasions in 1961, De Reny through
Aurora Carcereny (aka Aurora Gonzales),
president and Aurora Tuyo, secretary of the
corporation, applied to the BPI for 4 irrevocable
commercial letters of credit (L/C) to cover the
purchase of goods such as dyestuffs from their
supplier J. B. Distributing Co.
-All the applications of the corporation were approved
and the corresponding commercial L/C
agreements were executed pursuant to banking
procedures.
-Under the agreements, the aforementioned officers
bound themselves personally as joint and
solidary debtors with the corporation.
-As per bank regulations then in force, De Reny
delivered to BPI peso marginal deposits as each
L/C was opened.
-BPI then issued irrevocable commercial L/Cs
addressed to its correspondent banks in the US
with uniform instructions for them to notify the
beneficiary thereof, JB Distributing Co, that they
have been authorized to negotiate the latters
sight drafts up to the amounts mentioned therein,
if accompanied upon presentation, by full set of
negotiable clean on board ocean bills of lading,
covering the merchandise appearing on the L/Cs
(ie dyestuffs).
-Consequently, the corresponding banks debited the
account of BPI w/ them up to the full value of the
drafts presented by the JB Dist. Co. plus
commission thereon, and thereafter, endorsed
and forwarded all documents to BPI.
-As each of the shipments arrived, De Reny made
partial payments to BPI however, further
payments were discontinued subsequently as a
result of the chemical test wherein it was found
that the goods that arrived in Manila were not
dyestuffs but were colored chalks.
-De Reny refused to take possession of the goods so
BPI caused them to be deposited w/ a bonded
warehouse and sued De Reny.
-The lower court ordered the defendants to pay BPI
w/ interest.
NEGO - Quevedo 131
Camille Umali
ISSUE
WON it was the duty of the correspondent banks of
BPI to take the necessary precaution to ensure
that the goods shipped under the covering L/C
conformed w/ the item appearing therein TF
having failed to do so, no claim for recoupment
could be had against the defendants
HELD: NO, defendants are liable for recoupment.
-Under the terms and conditions of their commercial
L/C agreement with BPI, the defendants agreed
that BPI shall not be responsible for the
existence, character, quality, quantity,
conditions, packing, value or delivery of the
property purporting to be represented by
documents; for any difference in character,
quality, quantity, condition, or value of the
property from that expressed in documents, or
for partial or incomplete shipment, or failure or
omission to ship any or all the property referred
to in the Credit, as well as for any deviation
from instructions, delay, default, or fraud by the
shipper or anyone else in connection with the
property the shippers or vendors and
ourselves(purchasers) or any of us.
-Having agreed to these terms, the defendants have
to comply w/ their covenant.
-But even w/o said stipulation, they are still liable
because banks, in providing financing in intl
business transactions such as those entered into
by the defendants, do NOT deal with the property
to be exported or shipped to the importer but deal
only with documents (as per Art 10 of the Uniform
Customs and Practices for Commercial
Documentary Credits Fixed for the 13th
Congress of Intl Chamber of Commerce)
-Having proved that there exists a custom in intl
banking and financing circles negating any duty
on the part of a bank to verify whether what has
been described in the L/Cs or drafts or shipping
docs actually tallies with what was loaded in the
ship, the defendants are bound by said
established usage.
Disposition Judgment affirmed.

SANTAMARIA V HSBC
Bautista-Angelo; 89 Phil. 780 (1951)
~jaja~
FACTS
-Santamaria bought 10,000 shares of the Batangas
Minerals through the offices of Woo, Uy-Tioco &
Naftaly, a stock brokerage firm and paid therefore
the sum of P8,014.20 as shown by receipt Exh.
B. The buyer received Stock Certificate No.
517, Exh. E, issued in the name of Woo Uy-
Tioco & Naftaly and indorsed in blank by this firm.
On March 9, 1937, Mrs. Santamaria placed an
order for the purchase of 10,000 shares of the
Crown Mines Inc. with R.J. Campos & Co. a
brokerage firm and delivered Certificate No. 517
to the latter as security therefor with the
understanding that said certificate would be
returned to her upon payment of the 10,000
Crown Mines, Inc. shares. Exh. D is the receipt
of the certificates in question signed by one Mr.
Coscolluela, manager of the R.J. Campos & Co.,
Inc. According to certificate, Exh. E, R.J.
Campos & Co., Inc. bought for Mrs. Josefa T.
Santamaria 10,000 shares of the Crown Mines,
Inc. at .225 a share, or the total amount of
P2,250.00.
-At the time of the delivery of Stock Certificate No.
517 to R.J. Campos & Co., Inc. this certificate
was in the same condition as that when Mrs.
Santamaria received it from Woo, Uy-Tioco &
Naftaly, with the sole difference that her name
was later written in lead pencil on the upper right
hand corner thereof.
-Two days later, on March 11, Mrs. Santamaria went
to R.J. Campos & Co., Inc. to pay for her order of
10,000 Crown Mines shares and to get back
Certificate No. 517. Coscolluela then informed
her that R.J. Campos & Co., Inc. was no longer
allowed to transact business due to the
prohibition order from the Securities and
Exchange Commission. She was also informed
that her stock certificate was in the possession of
the Hongkong & Shanghai Banking Corporation
(HSBC). Certificate No. 517 came into the
possession of the HSBC because R.J. Campos &
Co., Inc. had opened an overdraft account with
this bank and to this effect it had executed on
April 16, 1936 a document of hypothecation, Exh.
I, by the term of which pledged to the said bank
all the stocks, shares, and securities which I/We
may hereafter come into their possession on
my/our account and whether originally deposited
for sale custody or for any other purpose
whatever or which may hereafter be deposited by
me/us in lieu of or in addition to the Stocks,
Shares and Securities now deposited for any
other purposes whatsoever.
-On March 11, 1937, as shown by Exh. G,
Certificate No. 517, already indorsed by R.J.
Campos & Co., Inc. to the HSBC, was sent by
the latter to the office of the Batangas Minerals,
NEGO - Quevedo 132
Camille Umali
Inc. with the request that the same be cancelled
and a new certificate be issued in the name of
R.W. Taplin as trustee and nominee of the
banking corporation. Taplin was an officer of this
institution in charge of the securities belonging to
or claimed by the bank. As per this request the
Batangas Minerals, Inc. on March 12, 1937,
issued Certificate No. 715 in lieu of Certificate
No. 517, in the name of Taplin as trustee and
nominee of the HSBC.
-Mrs. Santamaria said she made the claim to the bank
for her certificate, though she did not remember
the exact date, but it was most likely on the
following day of that when she went to
Coscolluela for the purpose of paying her order
for 10,000 shares of the Crown Mines, Inc. or
else on March 13, 1937. In her interview with
Taplin, the banks representatives, she informed
him that the certificate belonged to her and she
demanded that it be returned to her. Taplin then
replied that the bank did not know anything about
the transaction had between her and and R.J.
Campos & Co., Inc. and that he could not do
anything until the case of the bank with Campos
shall have been terminated. This declaration was
not contradicted by the adverse party.
-In Civil Case No. 51224, R.J. Campos & Co., Inc.
was declared insolvent, and on July 12, 1937, the
HSBC asked permission in the insolvency courts
to sell the R.J. Campos & Co., Inc. securities
listed in its motion by virtue of the document of
hypothecation, court granted this motion.
-On June 13, 1938, the 10,000 shares of Batangas
Minerals, Inc. represented by Certificate No. 715
were sold to the same bank by the Sheriff for
P300.00 at the foreclosure sale authorized by
said order. R.J. Campos, the president of R.J.
Campos & Co., Inc. was prosecuted for estafa
and found guilty of this crime and was sentenced
by the Manila Court of First Instance in Criminal
Case No. 54428, to an imprisonment and to
indemnify the offended party, Mrs. Josefa
Santamaria, in the amountof P8,041.20
representing the value of the 10,000 shares of
Batangas Minerals, Inc. (Exhs. I and J). The
offended party and RW Taplin were among the
witnesses for the prosecution in this criminal case
No. 54428.
-When Mrs. Santamaria failed in her efforts to force
the civil judgment rendered in her favor in the
criminal case because the accused became
insolvent, she filed her complaint in this case on
October 11, 1940. At the trial both parties agreed
that the 10,000 Batangas Minerals shares
formerly represented by Certificate No. 517 and
thereafter by Certificate No. 715, have no actual
market value. Defendants-appellants contend in
the first place that the trial court erred in finding

that the plaintiff-appellee was not chargeable with
negligence in the transaction which gave rise to
this case.
ISSUE
WON defendant bank was obligated to inquire who
the real owner of the shares represented by the
certificate of stock was
HELD: NO.
-The certificate of stock in question was issued in the
name of the brokerage firmWoo, Uy-Tioco &
Naftaly and that said indorsement was
guaranteed by R.J. Campos & Co., Inc., which in
turn indorsed it in blank. This certificate is what is
known as street certificate. Upon its face, the
holder was entitled to demand its transfer into his
name from the issuing corporation. The Bank
was not obligated to look beyond the certificate to
ascertain the ownership of the stock at the time it
received the same from R.J. Campos & Co., Inc.
for it was given to the Bank pursuant to their
letter of hypothecation. Even if said certificate
had been in the name of the plaintiff but indorsed
NEGO - Quevedo 133
Camille Umali
in blank, the Bank would still have been justified
in believing that R.J. Campos & Co. Inc. had the
title thereto for the reason that it is a well-known
practice that a certificate of stock, indorsed in
blank, is deemed quasi negotiable, and as such
the transferee thereof is justified in believing that
it belongs to the holder and transferor.
-A mere claim of ownership does not establish the
fact of ownership. The right of the plaintiff in such
a case would be against the transferor. The fact
that on the right margin of said certificate the
name of the plaintiff appeared written, granting it
to be true, cannot be considered sufficient reason
to indicate that its owner was the plaintiff
considering that said certificate was indorsed in
blank by R.J. Campos & Co., Inc. and was
transferred in due course by the latter to the Bank
under their letter of hypothecation. Said indicium
could at best give the impression that the plaintiff
was the original holder of the certificate.
Disposition Decision modified in the sense of ordering
the defendant to deliver to the plaintiff certificate
of stock No. 715

DELOS SANTOS V McGRATH
96 Phil 577 (1955)
FACTS
-Plaintiff is claiming ownership of 1.6 M shares of
stock of Lepanto Consolidated Mining Co., Inc.
covered by several stock certificates issued in
favor of Vicente Madrigal, who is the registered
owner in the books of Lepanto and whose
indorsement in blank appears on the back of said
certificates. The certificates except one, covering
55k shares, are in plaintiff's possession.
-Santos claims he bought the shares from different
persons (Campos and Hess) in 1942. Ownership
of said shares was vested in the Alien Property
Custodian of the US by virtue of an order in 1945.
The Administrator denied plaintiff's claim on the
ground that the stocks were bought by Madrigal
in trust for and for the benefit of Mistui Busaan
Kaisha (a Japanese corp); that Mitsui kept the
certificates in its office in Manila until liberation;
and that the certificates were never sold or
otherwise disposed of so that they were probably
stolen during the war.
-Plaintiff couldn't produce as witnesses the persons
from whom he bought the stocks because they
died in the war.
ISSUES
1. WON plaintiff had purchased the shares of stock
2. WON stock certificates are negotiable instruments
HELD
1. NO.
-Even if Campos and Hess did sell the shares, the
result, insofar as plaintiff is concerned, would be
CAPCO V MACASAET
L-9088; 189 SCRA 561; Sept 13, 1990
FACTS
-Capco was a stockholder, director & executive VP of
Monte Oro Mineral, a local mining company.
-He owned shares of capital stock of Monte Oro. It's
total value was over 565K.
-Capco INDORSED and delivered his 2 stock
certificates (02 and 26) to Macasaet, President of
Monte Oro. Macasaet received it with an
ACKNOWLEDGMENT RECEIPT wherein he
acknowledged that he received said certificates in
trust and for safekeeping only to be delivered to
Capco ON DEMAND.
-Capco demanded the return of his certificates.
Macasaet replaced cert 26 with his own. As for the
other certificate, it was returned later than cert26.
Note that both certificates were not returned on
demand.
-Capco filed a complaint saying that because of the
delay, he lost over 300K.
-Macasaet said that there was delay because Feliciano,
the person to whom he entrusted the certificates,
failed to return the same.
NEGO - Quevedo 134
Camille Umali
the same. The shares were registered, and are
still, in the name of Madrigal. It was not disputed
that he was a mere trustee. It was proven that
Mitsui never sold or otherwise disposed of the
shares.
-According to the Corporation Law, a share of stock
may be transferred by endorsement of the
corresponding stock certificate, coupled with its
delivery. However, the transfer shall not be valid,
except as between the parties, until it is entered
and noted upon the books of the corporation.
Therefore, the alleged sale by Campos and Hess
is not valid except as between them and plaintiff.
It doesn't bind Madrigal of Mitsui.
2. NO
-Although a stock certificate is sometimes regarded
as quasi-negotiable, in the sense that it may be
transferred by endorsement, coupled with
delivery, the instrument is non-negotiable,
because the holder thereof takes it without
prejudice to such rights or defenses as the
registered owner may have under the law, except
if the circumstances properly call for application
of estoppel.
-Even if the owner of the certificate has endorsed it in
blank, and it is stolen from him, no title is
acquired by an innocent purchaser for value.
-The title of the true owner of a lost or stolen
certificate may be asserted against any one
subsequently obtaining possession although the
holder may be a bona fide purchaser.
-TC in favor of Capco. CA reversed.
ISSUE: WON CA erred.
HELD: NO. CA did not err.
-Certificates of stocks are considered "quasi-negotiable"
instruments. When the owner/shareholder of these
certificates signs the printed form of sale
/assignment at the back of every stock certificate
without filling in the blanks provided for the name of
the transferee and name of atty-in-fact, the said
owner/stockholder, in effect, confers on another all
the indicia of ownership of said certificates.
-In the case at bar, Capco signed the printed form at the
back of both certificates without filling in the blanks.
Capco's acts of indorsement and delivery conferred
on Macasaet the right to hold them as though they
were his own. Because of this, there was nothing
irregular about Macasaet delivering the certificates
to Feliciano for a consideration in connection with
the contemplated business tie-up.
-This is the way to look at the case, notwithstanding the
Acknowledgment Receipt.

ROMAN V ASIA BANKING CORP
Ostrand; 46 Phil. 705 (1922)
FACTS
-Umberto de Poli purchased 2,777 bales of tobacco
from Felisa Roman
-Of the P78,815.69 total value, de Poli paid P15,000 in
cash. He executed 4 notes of P15,953.92 each for
the balance
-On November 18, 1920, de Poli, for value received,
issued a negotiable receipt (quedan) covering 576
bales of tobacco, to the Asia Banking Corporation
-De Poli became insolvent and insolvency proceedings
were filed -In said proceeding, the CFI declared
the vendor's lien claimed by Felisa Roman on the
576 bales of tobacco superior to that claimed by
Asia Banking Corporation
-Hence, this appeal
ISSUE WON Felisa Roman's right over the 576 bales
of tobacco is superior to that of Asia Banking
Corporation
HELD: NO.
-Sec 49 of Act No. 2138 provides: Where a negotiable
receipt has been issued for goods, no seller's lien
or right of stoppage in transitu shall defeat the
rights of any purchaser for value in good faith to
whom such receipt has been negotiated, whether
such negotiation be prior or subsequent to the
notification to the warehouseman who issued such
receipt of the seller's claim to a lien or right of
stoppage in transitu. Nor shall the warehouseman
be obliged to deliver or be justified in delivering the
goods to an unpaid seller unless the receipt is first
surrendered for cancellation.
-There can be no doubt that if the quedan or the
warehouse receipt in question is negotiable, the
vendor's lien of Felisa Roman cannot prevail over
the rights of Asia Banking Corporation as the
indorsee of the receipt.
NEGO - Quevedo 135
Camille Umali
-The question of whether or not the receipt issued in
favor of Asia Banking Corporation is negotiable is
not entirely free from doubt because the receipt is
not perfect. It recited that the merchandise is
deposited in the warehouse, "por orden" instead of
"a la orden" or sujeto ala orden" of the depositor
and it contains no other direct statement showing
whether the goods received are to be delivered to
the bearer, to a specified person, or his order.
-The SC held that it must be considered a negotiable
receipt.
-A warehouse receipt, like any other document, must
be interpreted according to its evident intent -It is
quite obvious that the deposit evidenced by the
receipt was intended to be made subject to the
order of the depositor and therefore, negotiable.
-The instrument must be construed to mean that de
Poli was the person authorized to endorse and
deliver the receipt; any other interpretation would
mean that no one had such power and the clause,
as well as the entire receipt, would be rendered
nugatory
-Also, the receipt was not marked "non-negotiable."
Modern statutes have enlarged the negotiability of
warehouse receipts, making such receipts
negotiable unless marked "non-negotiable."
-Sec 7 of our Warehouse Receipts Act says: "A non-
negotiable receipt shall plainly place upon it's face
by the warehouseman issuing it 'non-negotiable,'
or 'not negotiable.' In case of the warehouseman's
failure to do so, a holder of the receipt who
purchased it for value supposing it to be
negotiable may, at his option, treat such receipt as
imposing upon the warehouseman the same
liabilities he would have incurred had the receipt
been negotiable."

JOHN S. HALE & CO V BELEY COTTON CO
Tennessee SC; 154 Tenn 689, 200 SW 994 (1927)
~rach~
FACTS
-Hale Co. sold to the Beley Cotton Co. 222 bales of
cotton represented by warehouse receipts and
bills of lading. These documents of title were
delivered by Hale to the Beley Cotton upon
receipt of checks of that company, aggregating
$33,738.83, drawn on Union and Planters Bank.
All these checks were dishonored.
-In exchange for warehouse receipts thus acquired by
Beley Cotton, issued by a Memphis warehouse,
the Beley Co. procured clearance certificates.
Beley Cotton then attached these clearance
certificates, the remaining warehouse receipts,
and the bills of lading to drafts drawn by it on
customers and deposited these drafts to the
credit of its account in defendant bank. Beleys
credit with the bank had been exhausted by other
checks, so that, the checks for Hale were
returned unpaid.
ISSUE: WON the bank acquired the title to the goods
(being an innocent purchaser for value from
Beley Cotton of the said documents of title)
HELD: NO. Transferee of order bills of lading, not
indorsed by person to whom goods were
deliverable, took no better title than transferor.
Transferee of "order" warehouse receipts, not
indorsed by person to whose order goods were
deliverable, acquired no greater title than
transferor.
Re: FIRST LOT represented by warehouse receipts-
Beley Cotton did not undertake to negotiate these
receipts to the bank, but, exchanged said
receipts with the Memphis warehouse, which
SOUTHERN PAC. CO V BANK OF AMERICA
District Court of Illinois; 23 Fed. 939; 1928
~cHa~
FACTS
Subject: crab meat from Japan, bill of lading,
warehouse receipts
Shipper (presumably also the consignor): Ono & Co.,
sold and assigned the bill of lading and sight draft
for $37k to Pacific National Bank (PNB)
Vendee: definitely not PNB. unnamed
Carrier: Southern Pacific Railway Company
-how Bank of America (BA) obtained the warehouse
receipts: the vendee fraudulently made
SouthPacs agents to deliver to them the crab
meat without the production of the bill of lading
(in violation of the condition that the crab meat
should not be delivered until the bill should be
surrendered). Vendee deposited goods in a
public warehouse, taking warehouse receipts. BA
NEGO - Quevedo 136
Camille Umali
issued them for clearance certificates of that
warehouse, and pinned the clearance certificates
to the draft made on account of this lot of cotton
and deposited with the bank. The clearance
certificates recited on their face that they were
not negotiable. Under these circumstances, the
bank acquired no better title to this lot of cotton
than the Beley Cotton Company possessed. The
Beley Cotton Company, however, could not pass
a title which it did not have, except by an
instrument to which the law gave negotiability,
and the clearance certificates were expressly
nonnegotiable.
Re: SECOND LOT represented by warehouse
receipts-The bank got no better title to the cotton
represented by these warehouse receipts than
was possessed by the Beley Cotton. Beley
acquired no title by reason of the fact that its
checks given for the cotton were dishonored.
Since the receipts we are considering had not
been indorsed by the person to whose order the
goods were deliverable, they could not be
indorsed and negotiated by anyone else.
Although Beley Cotton did indorse the receipts,
such indorsement by it was not effective for
purposes of negotiation.
Re: THIRD LOT represented by bills of lading-The
bills of lading in controversy had not been
indorsed by Manget Bros., the persons to whom
the carrier had undertaken to deliver the goods,
when they came into the hands of the bank. They
were not in such shape that they might be
negotiated by delivery. They were not in
negotiable form at all.
Disposition No error in CA decision; certiorari denied.
loaned the vendee $34k, and the negotiable
warehouse receipt is the security for the loan. BA
not aware that vendee fraudulently acquired the
goods.
-how SouthPac had title over goods: PNB found out
that the vendee fraudulently obtained the goods,
demanded from SouthPac to pay for it. SouthPac
took the assignment of the bill of lading and draft
for $37k.
*so SouthPac now wants to recover the goods from
BA, instituted replevin suit
-claims of SouthPac: (1) Ono & Cos title never
passed to BA; (2)SouthPac had superior title over
BA who obtained title from a fraudulent vendee
-claims of BA: SouthPac ESTOPPED: (1) SouthPacs
agents wrongfully delivered the goods, made

possible the negotiation of the warehouse
receipts (2) SouthPac knew at the time when it
obtained the title from PNB that its agent
wrongfully delivered the goods to the vendee and
that the vendee assigned the warehouse receipts
to BA for value
ISSUE
WON SouthPac could acquire the goods from BA
HELD: NO. For BA.
-It would be contrary to the established law to allow
Southern Pac, who has purchased his title with
full knowledge of the facts, to prevail against a
bona fide purchaser, for its act (through its agent)
made possible the procurement of the negotiable
warehouse receipts and the sale thereof by the
vendee
Ratio. No owner of merchandise may be deprived of
title thereto, except by his consent, or by the
existence of such facts as will create an estoppel
against him to assert his title. A thief can convey
no title to a bona fide purchaser, nor can a
trespasser, or other tortuous taker of
merchandise, convey a good title thereto.
W.S. BROWN MERCANTILE CO V YIELDING BROS. DEPT STORE
SC of Alabama (1917)
FACTS
-Franklin, a tenant farmer, gave a chattel mortgage on
his cotton crop to Yielding Bros., which was
recorded in the office of the probate judge of the
county where said cotton was grown and stored.
Subsequently, Franklin stored the cotton in the
Warrant Warehouse Co. and took a negotiable
receipt. Said receipt was sold by Franklin for the
full cash value of the cotton to W.S. Brown, which
had no actual knowledge of the prior chattel
mortgage. The chattel mortgagee (Yielding Bros.)
sued the purchaser of the warehouse receipt
(W.S. Brown) for $ 1,050, the value of the cotton.
-Under the provisions of Sec. 3373, Code 1907, the
recording of the mortgage operated as a notice of
the contents thereof.
ISSUE
WON the Warehouse Receipts Act, providing for the
negotiability of such warehouse receipts, is
repealed by Code 1907
HELD: NO.
-Yielding Bros., as chattel mortgagee, is entitled to the
value of the cotton.
NEGO - Quevedo 137
Camille Umali
However, one who secures title to property by
fraudulent misrepresentations may convey good
title to a bona fide purchaser. The vendor is there
stopped to assert its rights.
-The purchaser whom the act protects is he who is
entitled to assume that the carrier has not
delivered the goods and will not thereafter deliver
them except to a person who holds the bill of
lading.
Reasoning. Here, by its fraudulent representations,
the vendee persuaded the delivering carrier to
surrender the goods. That delivery was a
conscious, voluntary delivery, induced by fraud,
true it is, but none the less a delivery consciously
and voluntarily made, a delivery within the
apparent scope of the plaintiffs agents authority.
The goods were not stolen; they were not
received by the vendee as a result of a trespass,
but consent to delivery was fraudulently
procured. It follows that the purchaser from the
vendee stands in the position of the purchaser
from any fraudulent vendee, whose rights by
virtue of the doctrine of estoppel are well
recognized as being superior to those of the
vendor or parties in privity with him.
Sec. 41, Warehouse Receipt Act
A person to whom a negotiable receipt has been duly
negotiated acquires thereby (a) Such title to the
goods as the person negotiating the receipt to
him had or had ability to convey to a purchaser in
good faith for value, and also such title to the
goods as the depositor or person whose order
the good were to be delivered by the terms of the
receipt had or had ability to convey to a
purchaser in good faith for value, and (2) the
direct obligation of the warehouseman to hold
possession of the goods for him according to the
terms of the receipt as fully as if the
warehouseman had contracted directly with him.
-The phrase or had ability to convey to a purchaser
in good faith for value means provided such
person was such purchaser in good faith for
value. If the purchaser had actual notice, no one
would contend that he was a purchaser in good
faith. Registration laws were enacted for the
purpose of giving notice, and the mortgage
herein, having been duly recorded gave the
purchaser a constructive notice so as to prevent
him from being a purchaser in good faith.
 NEGO - Quevedo 138
Camille Umali

DUNAGAN V GRIFFIN
CA of Texas, 151 S.W. 2d 250 (1941)

FACTS
-Dunagan employed Whitehead to haul beer from
Houston to Big Springs, Texas, and gave him a
check payable to Gulf Brewing Co. as payment
upon receipt of the goods. Whitehead hauled the
beer to Fort Worth for storage in defendant
Storage Companys warehouse and received a
warehouse receipt in his own name. Defendants
refused to deliver to plaintiff. Company alleged it
was told Griffin was the owner and holder of the
receipt; Griffin was interpleaded, filed intervention
stating he loaned money to Whitehead and took
the receipt as security in good faith and for value
($730). Judgment in favor of Griffin.
ISSUE
WON Griffin acquired rights to the beer
HELD: NO
-Article 5616 of the Uniform Warehouse Receipts Act
provides that an indorsee of a negotiable receipt
acquires such title as the indorser or depositor
had (or the latters ability to convey to a
purchaser in good faith and for value).
-Griffin, despite his good faith, could acquire no better
title than Whitehead, who was in possession of
the beer only by virtue of his contract to transport
it. Griffin only received such title as Whitehead
could have conveyed to a purchaser of the goods
in good faith and for value.

LUHRS V VALLEY RANCH CO., INC

SC of Arizona; 27 Ariz. 306. P. 1014
FACTS
-Franklin, the person in-charge of the ranch of Luhrs
sold to Harrison four bales of cotton. Harrison, in
turn, delivered it to Valley Ranch for ginning and
storage, and held defendants negotiable
warehouse receipts therefor.
-Luhrs instituted and action in replevin to recover
possession of the bales but the defendant
refused by virtue of the Uniform Warehouse
Receipts Act (Section 25 ), providing that it could
not be compelled to surrender the seized
property until the receipts were either
surrendered or impounded by the court . Luhrs,
on the other hand, argues that Section 25 of the
WRA does not cover an action of replevin by the
real owner of the goods.
ISSUE
WON Section 25 of the WRA includes an action of
replevin
HELD: YES.
The whole purpose of the section is to protect the
warehouseman who comes into possession of
the property from being liable to two parties.
Moreover, under all the evidence, Franklin was a
person whose actwould bind the owner.
Harrison was a purchaser in good faith. He had
no reason to doubt the authority of Franklin to sell
the cotton as the latter was running the ranch and
selling the products for three or four years.

SIY CONG BIENG & CO V HSBC
55 Phil. 598 (1932)
FACTS
-Ranft called at the office of the plaintiff to purchase hemp
(abaca)and he was offered the bales of hemp as
described in the quedans. Together with the covering
invoice, the quedans were sent to Ranft, without
having paid for the hemp, but the plaintiff's
understanding was that the payment would be made
against the same quedans, and it appears that in
previous transactions of the same kind, quedans were
paid on or 2 days after their delivery.On the date the
quedans were delivered to the defendant, Ranft died,
and when the plaintiff's found that such was the case,
it immediately demanded the return of the quedans,
or the payment of value, but was told that the
quedans haed been sent to the defendant soon as
they were received by Ranft.
-Shortly after, the plaintiff files a claim for the said sum in
the intestate proceedings of the estate of the
deceased. In the mean time, demand had been made
by the plaintiff on the defendant bank for the return of
the quedans or their value, which was refused by the
bank on the ground that it was the holder of the
quedans in due course.
There upon, the plaintiff filed its first complaint against the
defendant, wherein it alleged that it had sold the
quedans to the deceased for cash, but that the
deceased had not fulfilled the conditions of the sale.
Lter on, plaintiff filed an amended complaint wherein
they changed the word 'sold' to 'attempted to sell'.
-TC rendered in favor of the plaintiff on the ground that the
defendant bank could not have acted in good faith for
the reason that according to the statement of his own
witness, the quedans were delivered to the bank in
order to secure the debts of Ranftfor the payment of
their value and from which it might be deducted that
the said bank knew that the value fo the said quedans
had not been paid when it was endorsed to them.
NEGO - Quevedo 139
Camille Umali
ISSUE
WON the defendant bank is a holder in due course
HELD: YES.
-TC decision is not tenable. First, the quedans were in
negotiable in form. Second, that they were pledged by
Ranft to the defendant bank to secure the payment of
debt t bank. Third, that such of the quedans were
issued in the name of the plaintiff were duly endorsed
in blank by the plaintiff and Ranft. Fourth, that the 2
remaining quedans which were issued directly in the
name of Ranft were also duly endorsed in blank to
him.
When the quedans were negotiated, Ranft was indebted
to HSBC, which indebtedness was partly covered by
quedans. Since the quedans were negotiable in form
and duly endorsed in blank by the plaintiff and Ranft,
it follows that on the delivery to the bank they were no
longer the property of the indorser unless he
liquidated his debt with the bank.
-Nothing in the record would compel the bank to
investigate the indorser. The bank had perfect right to
act.
-The warehouse receipt represents the goods, but the
entrusting of the receipt is more than the mere
delivery of the goods; it is a representation that the
one to whom the possession of the receipt has been
so entrusted has the title to the foods. The importance
of Sec 47 and Sec 41 is that if the owner of the goods
permits another to have the possession or custody of
negotiable warehouse receipts running to the order of
the latter, or to bearer, it is a representation of title
upon which bone fide purchasers for value are
entitled to reply, despite breaches of trust or violations
of the agreement on the part of the apparent owner.